I. Introduction
US is currently facing one of the worst inflation rates in decades, standing at 8.3% (consumer price index) last month.[1][2] In addition to economists explaining its causes and development, questions over the future have also arisen. It is known, from economic theory, that high inflation rates are followed by recession due to an abrupt recovery of the economy.[3] Thus, the discussions over inflation transformed into debates over a potential recession to follow the current economic trends. Economists and investors each take a position in this debate, with the majority having a firm opinion that a recession will hit the US by 2024. Understanding why their belief is so firm and what actions the government and financial institutions are taking to prevent it from happening are essential in concluding the future of the US economy.
Moreover, analysing the potential political impact a recession can have, is as important, given that the economic degrowth coincides with the US presidential election in 2024. Political and economic theories and past examples provide some answers to these questions.
II. What is a recession
Theoretical definitions
A recession simply means 'a significant decline in the economic activity' that can last months or even years (with the average length of a US recession being 11 months).[4] Some indicators of a recession are negative GDP, rising unemployment, and falling consumption for an extended period.[5] However, out of this indicator Julius Shiskin argued that a declining GDP for two consecutive quarters is the most accurate.[6] Since then, this became the most popular definition of a recession.[7]
Moreover, in the US, The National Bureau of Economic Research (NBER) is the authority that determines the beginning and end of a recession. They provided a different definition than Shiskin, namely ‘a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales’, among others. This is a broader definition that incorporates more indicators, which can make it more accurate. For example, a W-shaped recession, in which the GDP drops in one quarter, then recovers, and then falls again, would not be categorised as a recession according to Shiskin’s definition.[8]
Political Formulas
Additionally, a recession has a profound effect on the body politic. This led some politicians, including President Joe Biden, to ‘redefine’ the meaning of recession.[9] Instead of applying one of the two accepted definitions, Biden argues that a recession is when ‘the three-month moving average of the unemployment rate rises by at least half a percentage point (50 basis points) relative to its lowest point in the previous 12 months’.[10] According to this new definition, the US is not currently in a recession, and is also not close to one, given that the unemployment rates are the lowest in 50 years.[11]
Lastly, these debates over what is a recession make one wonder why a recession by 2024 is so firmly and unanimously supported.
III. Why is the recession so certain?
What the economists say
Despite these theoretical debates, most economists firmly support a recession will take place in the US by 2024. The former US Treasury Secretary and Harvard University Professor, Lawrence Summers, is one of them, suggesting that US has a 75% probability to hit a recession in the next two years.[12] This conclusion comes from the high rates of inflation combined with low rates of unemployment, which make ‘a soft landing’ (meaning a small economic decrease after inflation) highly impossible.[13] He also brings an empirical argument, saying that historically high rates of inflation (as we currently experience) were never brought down without a recession.[14] Overall, Summers’ arguments suggest why a recession is so highly expected, given the lack of precedent when a recession did not take place in a similar economic context as now.
What financial institutions say
Moreover, it is not only the economists that are announcing and preparing for a recession, but also the banks. Deutsche Bank was the first major financial institution to announce a ‘major recession’,[15] by late next year and early 2024.[16] A survey, by Bloomberg Markets Live (img. 1) shows that 48% of investors expect a recession to hit the US next year.[17] The latest investor survey by Global Fund Manager (which polled 284 individuals who collectively manage assets worth US$836 billion), showed a similar conclusion, with the expectation of a recession reaching an 'all-time high', since the survey began in 1995.[18] However, according to the same surveys, after inflation, a recession is the second biggest concern for fund managers.[19] Thus, inflation plays a key role, that needs to be analysed.

Inflation vs. recession. A baffling dilemma
Another reason why a recession is so anticipated is because of the measures taken to flatten the high inflation. These include actions taken by the Federal Reserve known as ‘(interest) rate hikes’.[20] This raises the dilemma many banks and governments face, between trying to cool inflation, which can cause a recession, or not acting against inflation (letting it rise), decreasing the probability of a recession. At the core of the debate rests the question of which one is worst, inflation or recession. There is no clear consensus, as they both negatively impact different parts of the economy, though many argue inflation is worst, due to its universal effect.[21]
Changing times. Changing economic indicators
However, other analysts, such as Peter Zeihan, argue why predicting a recession is becoming more difficult. He highlights that the GDP did shrink in the last two quarters in the US, however, a recession is not yet happening, given the low unemployment levels (their best in the last 50 years) and strong consumer spending.[22] Thus, he argues that the changing economic environment, such as a global aging population, ‘made long-used economic tools obsolete’, as ‘we are entering uncharted territory’.[23] Zeihan does not provide any conclusive answer, over the probability of a recession or its definition, as he only emphasises that the 'rules' of how economy works are changing.[24]
Nevertheless, what is there to do once a recession is anticipated? Or, in other words, how does it help that economists and financial institutions are anticipating a recession, and what actions do they take in its preparation?
IV. What’s being done
Actions were taken by the administration against the rising inflation, through a bill known as the ‘Inflation Reduction Act’. Summers was one of the supporters of the bill.[25] He emphasised how it will slow-down rising prices, without raising the national debt, and added that the first steps would be to increase taxes and reduce tariff levels.[26] These would lower consumer costs, and, implicitly, slow-down rising prices. Moreover, those actions are taken against the inflation, but if successful, they would also significantly decrease the probability of a recession, by preparing for a ‘soft landing’.[27]
However, many economists consider the measures to be insufficient and tardily, given that the nation is facing ‘the hottest inflation in four decades’.[28] In this context, a 'soft landing' is not realistic. Instead, the US will face, they argue, a jump in unemployment and a slowdown in economic activity that will last for months.[29]
While the debate continues, questions remain over what effects the recession would have.
V. What are the political effects?
A recession has profound negative economic effects, which are well known and studied. However, there are also political effects that must be considered when analysing a recession's impacts.
The fall of Biden?
Experts are debating how the inflation, and subsequent recession, which will take place during Biden’s administration, will affect his political career and a potential second run at the presidential elections in 2024. A poll from July 2022 showed that Biden's approval rates have drastically fallen to 26% among Democrats, while 64% would prefer someone else as their representative in 2024.[30] This political downfall is due to the economic degrowth coinciding with Biden’s last two years in the White House.[31] Businessweek columnist Joshua Green, from Bloomberg News, similarly argued that ‘presidents lose when there is an election-year recession’,[32] and this trend was reflected in Trump’s loss in 2020 and previously in history, George H.W. Bush’s and Herbert Hoover’s loss in 1992 and 1932 respectively.
Another theory, presented in a report by Citigroup, argues that Republicans tend to be elected when ‘the business-cycle peaks’, and Democrats when ‘the economy is depressed’.[33] According to this analogy, a Democrat would win in the eventuality of a recession during an election year. There are, however, exceptions, including when Trump took office. Thus, this is more of an observation than a rule, leaving open the question of how the next recession will influence the presidency.
The return of Trump?
Economic downfalls are most often associated with the rise of populism, as these movements are based on anti-elitist and anti-globalist rhetoric. A similar pattern is seen in Europe, where the Eurozone crisis last decade brought a rise in populism in the Southern countries (most notably Greece and Italy), the most affected countries by the crisis.[34] The fuel of populism is anti-establishment rhetoric; given that the crisis (either economic or political) took place under a respective government, they are the first to be blamed by the population. The same theory can be applied to the US and argue that the potential economic downfall will bring a rise in populism, rhetoric used most prominently by Trump.
VI. Conclusion
While many questions remain, the voices predicting a rough recession have been getting louder and louder. Supported by historical and numerical evidence, many economists and investors are certain a recession will hit the US by 2024. The government has responded to those predictions in different ways. While legislation was passed last month ('the Inflation Reduction Act'), the president's attempts to redefine a recession not to fit the sorrowful economic reality have left many critiquing him. Ultimately, past examples of presidents losing second mandates due to economic decline while leaving space for populism made many reflect on the adverse effects such a recession can have on US politics. All these questions remain under debate but bringing them forward for questioning can bring us and our representatives closer to a solution.
References
[1] World Bank, ‘US inflation Rate 1960-2022’, Macrotrends, 2022, Available online: US Inflation Rate 1960-2022 | MacroTrends
[2] U.S. Bureau of Labor Statistics, ‘United Stated Inflation Rate’, Trading Economics, 2022, Available online: https://tradingeconomics.com/united-states/inflation-cpi
[3] Kat Tretina, Benjamin Curry, ‘Inflation vs. Recession’, Forbes Advisor, 2022, Available online: Inflation vs. Recession – Forbes Advisor
[4] David Rodeck, Benjamin Curry, ‘What is a Recession?’, Forbes Advisor, 2022, Available online: Recession Definition: What Is A Recession? – Forbes Advisor
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] Ibid.
[9] James Bovard, ‘Biden plays Orwell, tries to redefine what <recession> means’, New York Post, Available online: Biden plays Orwell, and tries to redefine what 'recession' means (nypost.com)
[10] Ibid.
[11] Scott Horsley, ‘The unemployment rate fell to 3.5%, matching its lowest level in the last 50 years’, NPR, Available online: The unemployment rate fell to 3.5%, matching its lowest level in the last 50 years : NPR
[12] Kimberley Leonard, ‘Former US Treasury Secretary Larry Summers pegs recession likelihood at 75% chance’, Insider, Available online: Larry Summers Predicts Likelihood That US Will Go Into a Recession (businessinsider.com)
[13] Ibid.
[14] Ibid.
[15] MARCO QUIROZ-GUTIERREZ, ' Deutsche Bank just predicted ‘a major recession’ weeks after forecasting a ‘mild’ one’, Fortune, 2022, Available online: A "major" recession could come by late 2023 or early 2024, says Deutsche Bank | Fortune
[16] Felix Richter, ‘Investors predict US recession in 2023- here are the facts’, World Economic Forum, 2022, Available online: A US recession in 2023 is expected by a lot of investors | World Economic Forum (weforum.org)
[17] Ibid.
[18] CHLOE TAYLOR, ‘Investors are ‘no longer apocalyptically bearish’, but BofA warns recession expectations have hit an all-time high’, Fortune, 2022, Available online: Investors are ‘no longer apocalyptically bearish’, but BofA warns recession expectations have hit an all-time high – Fortune
[19] Ibid.
[20]Kat Tretina, Benjamin Curry, ‘Inflation vs. Recession’
[21] Ibid.
[22] Peter Zeihan, ‘Are we in a recession? It’s hard to tell because the world is changing’, Straight Arrow News, 2022, Available online: Zeihan: Are we in a recession? It’s hard to tell because the world is changing
[23] Ibid.
[24] Ibid.
[25] Kimberley Leonard, ‘Former US Treasury Secretary Larry Summers pegs recession likelihood at 75% chance’
[26] Ibid.
[27] Ibid.
[28] Ben Winck, ‘The Fed is confident it can stave off a recession in 2022, but others aren't so sure’, Insider, 2022, Available online: Here Are the Arguments for — and Against — a Recession in 2022 (businessinsider.com)
[29] Ben Winck, ‘The Fed is confident it can stave off a recession in 2022, but others aren't so sure’, Insider, 2022, Available online: Here Are the Arguments for — and Against — a Recession in 2022 (businessinsider.com)
[30] Aaron Blake, ‘The top 10 Democratic candidates for president in 2024, ranked’, The Washington post, 2022, Available online: The top 10 Democratic candidates for president in 2024, ranked - The Washington Post
[31] Nancy Cook, Reade Pickert, Gregory Korte, and Anna Wong, ‘US Faces a Fed-Triggered Recession That May Cost Biden a Second Term’, Bloomberg, 2022, Available online: US Recession Risk Hits 72% by 2024, Threatening Biden's Second Term - Bloomberg
[32] Joshua Green, ‘Presidents Lose When There’s an Election-Year Recession’, Bloomberg, 2022, Available online: Presidents Lose Elections Where There Are Recessions. Will Trump? - Bloomberg
[33] Pati Domm, ‘Presidential elections and recessions can have a lot in common’, CNBC, 2022, Available online: Presidential elections and recessions can have a lot in common (cnbc.com)
[34] Fabio Serricchio, Myrto Tsakatika and Lucia Quaglia, "Euroscepticism and The Global Financial Crisis", JCMS: Journal of Common Market Studies, 51.1 (2012), p. 58.
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