Growth Recession? Why Fed’s objective is now a ‘Growth Recession’ and not a Soft Landing?

Federal Reserve Chairman Jerome Powell said that the central bank is no longer aiming for a so-called ‘soft landing’ for the economy, where growth slows but doesn’t contract. Now we have a ‘growth recession’: protracted periods of low growth and rising unemployment.

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With his speech in Jackson Hole, Mr. Powell said the Fed’s new focus is on sustaining the expansion as long as possible and then dealing with any recession that might arise: “the Fed’s goal is to grind inflation down by slowing growth below its potential.”

The shift in thinking comes as officials grapple with how to extend an economic expansion now in its 11th year—the longest on record—amid muted inflation pressures and renewed concerns about global growth.

What is Growth Recession?

What is Growth Recession? In an article for The Balance, Solomon Fabricant defines a growth recession as “a period when economic output expands but at a rate that is significantly below the long-run average.” He explains that this can be caused by a number of factors, including “an increase in the unemployment rate, a decrease in the labor force participation rate, or a combination of the two.”

Growth Recession is the same as Stagflation?

The answer to this question is no, growth recession and stagflation are not the same. While both refer to periods of economic decline, they have different causes and effects.

Growth recession occurs when an economy contracts for two consecutive quarters. This can be caused by a number of factors, including a decrease in consumer demand or an increase in taxes. The effects of a growth recession include higher unemployment and lower GDP growth.

Stagflation, on the other hand, is a period of high inflation and low economic growth. This is often caused by an increase in costs, such as oil prices. The effects of stagflation include higher prices and lower wages.

What can happen to the economy in this Growth Recession?

A growth recession can have serious consequences for an economy. For example, it can lead to lower wages and higher unemployment. Additionally, it can cause businesses to cut back on investment and production, which can further slow economic growth.