The Federal Reserve raised its key interest rate by a quarter point Wednesday, adjusting the federal funds rate to a range of 5.25% to 5.5%, the highest level in 22 years.
Some economists predict that an economic low – possibly even a recession – could follow a decrease in inflation, which was at 3% in June, down from 9.1% one year earlier.
However, job growth is still strong. Last month, employers added 209,000 jobs and average wages grew 4.4% annually. Initial jobless claims, a gauge of layoffs, have retreated toward historically low levels after rising in June.
This contradictory phenomenon is being labeled by some economists as a full or high employment recession.
What is a recession?
A recession is “a significant decline in economic activity that spreads across the economy and lasts more than a few months,” according to Michael Pugliese, an economist with Wells Fargo.
The metrics for a recession vary among economist experts, with many identifying a recession as two consecutive quarters of negative Gross Domestic Product (or two-quarters of negative growth). The nonprofit the National Bureau of Economic Research determines if the United States is officially in a recession.
The last two downturns happened when the economy was jolted by a housing crisis in 2008 and then the COVID-19 pandemic in 2020, which led to massive layoffs as many businesses struggled or were forced to shutter when people hunkered down in their homes.
A recession this year could be triggered by the string of rate hikes implemented by the Federal Reserve to tame inflation as the economy rapidly accelerated and the pandemic waned, some economists have predicted.
What is full employment?
President Franklin D. Roosevelt defined full employment as an economy in which any person who seeks a job can secure one. The textbook definition of full employment is the highest possible employment level in an economy that doesn’t increase inflation, according to the Bureau of Labor Statistics.
Today,…
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