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The United States: the specter of recession


The’shares of the American retail giant Target plunged 38% in a month on the New York Stock Exchange. Investors are worried about the consequences of inflation, which has been at record levels in the United States for forty years (8.3% in April), on household consumption and, as a result, on the company’s future profits.

Faced with a price spike that is weighing heavily on their purchasing power, Americans have begun to change their behavior, by giving up certain expenses, for example televisions whose sales are falling sharply, or by giving preference to the cheapest brands and first-price products. “We didn’t anticipate the rapid changes we’ve seen over the last sixty days,” said Target CEO Brian Cornell.

TO READ ALSOIn the United States, the damage of inflation

This very negative impact of inflation on consumption, which accounts for two-thirds of GDP in the United States, raises fears that the US economy is entering a recession. In an op-ed published on the Telos website, former Treasury Secretary Lawrence Summers even considers this scenario almost inevitable. Relying on historical data going back to 1955, he observes that ” there has never been a quarter with an average inflation above 4% and an unemployment rate below 5% that was not followed by a recession in the following two years”.

According to him, the US Federal Reserve has taken of delay in its fight against inflation and will therefore have to adopt in the coming months a monetary response “much more forceful than currently expected”, that is, raising its key interest rates much faster and to a much higher level than is now anticipated. Under these conditions, Lawrence Summers believes, « iit is unlikely that the Fed will achieve a soft landing of the economy”.


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