An economist at Harvard says the economy is looking bad now, but not in a recession

These days, the economy seems to be on the pin and needle.

Stocks are crashing, investors are restless, and voices are constantly buzzing that a recession is almost upon us.

Things are looking bad right now, but one economist is refusing to draw in fear of the worst-case scenario এবং and says two main reasons indicate that the recession is far from certain.

May 11 in an interview Harvard GazetteJason Farman, a professor at Harvard and an economic adviser to the former president under Barack Obama, says the current market volatility is an inevitable part of the Federal Reserve’s policy to raise interest rates in the face of US inflation.

Furman is not surprised that the stock market is behaving so erratically now and suggests that it may even be inevitable.

“One thing that runs through the whole economy is interest rates,” he said. “When interest rates rise, it becomes more attractive for investors to transfer their money in bonds and out of stock, and as a result stocks fall.”

President Biden has made it clear that lowering the country’s inflation rate is a top domestic priority, sitting at 8.3% in the latest reading. To do this, the Federal Reserve has been raising interest rates since March, a move that is bound to have some effect on the stock market.

Furman said other factors, such as the impact of the Cowid Lockdown production in China, have severely damaged stock indices, particularly the tech-heavy Nasdaq. But still only “a story that goes through everything – and that’s the interest rate.”

But this does not mean that high interest rates do not pose a risk to the economy. The Fed’s efforts to engineer a way out of inflation could end in one of two ways: a soft landing for the economy — where inflation slows down without a significant decline in economic activity or a massive rise in unemployment — or a hard landing. As an economic catastrophe.

The saving grace of the economy

Fortunately for the economy, according to Furman, two factors seem to favor soft-landing results: consumer activity and gasoline prices.

Despite high prices across the economy, consumer activity has remained strong this year, mainly due to the huge savings of U.S. buyers during the epidemic. Whether or not U.S. consumers are able to continue shopping through the inflation storm will be a key factor in whether or not a recession will occur, according to Furman.

“I am relatively worried about next year’s recession because consumer spending is going to be very strong, and consumers have about $ 2.3 trillion in additional savings that they accumulated during the epidemic that could be spent over the next few years,” Farman said.

The notion that U.S. consumer power can save the economy from recession is based on the country’s low unemployment rate and large epidemic-era savings, and Farman is not alone in holding this view.

Investment bank Goldman Sachs has found a similar silver lining, recently reassuring investors that when the risk of a recession increases, “the financial health of the private sector can ultimately determine whether tightening policy will push the economy into recession.”

But while consumer spending is not enough to stave off a recession, Furman sees a major contributing factor to the stabilization of inflation: the price of gasoline.

“If you want to ask how far we’re going to go with inflation, you want to figure out volatile things like oil prices and gasoline prices because they’ve really risen, and they’re probably going to go down,” Furman said.

The national average for gas prices on Thursday was $ 4.41, one dollar higher than a year ago. But producers around the world are working hard to pump more supplies to reduce prices, including plans to release a record 1 million barrels of oil a day from the country’s strategic reserves.

“The good news is that a portion of inflation could go down or down,” Furman said, referring to the impact of higher gas prices on inflation.

“Even if the overall inflation is high, the part of the people that is most targeted should be better. There are very few reasons for the way they are growing, ”he added.

This story was originally shown on Fortune.com

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