Top Economist At Bank Of America Warns Recession Just Getting Started

The Biden White House has been working hard to convince Americans that the economy is not in a recession ever since the latest gross domestic product (GDP) report indicated the first two quarters of 2022 have seen an overall contraction in U.S. productivity.

Michael Gapen, the top economist with Bank of America, now confirms that the U.S. economy is in a recession, and expected new interest rate hikes by the Federal Reserve to fight inflation will aggravate the situation.

Gapen told Fox Business on Monday that the current cycle and economic history lead to the conclusion that it will be “really hard to achieve a soft landing.”

That “soft landing” that is likely to be elusive relies on the Fed finding the “sweet spot” where increases in interest rates can effectively tame inflation without causing a more severe production slowdown and corresponding job losses.

Fed chair Jerome Powell recently identified three historic examples where the “sweet spot” appears to have been hit by the central bank. In 1965, 1984, and 1994, the Fed was able to increase interest rates as inflation subsided and growth was maintained.

Gapen expressed hope that the recession will be mild and not prolonged, although he maintained that the tools the Fed has available amount to “kind of blunt instruments.”

Wall Street analysts are showing caution about an aggressive approach by the Fed to combat the surging inflation hammering essentially all working-class Americans. The annual consumer price index reported for July shows annual inflation sitting at 8.5%.

Powell has indicated that another interest rate hike of up to 0.75% is on the table for discussion in order to meet the Fed’s commitment to get inflation back down to the target of 2% annually.

Powell and Biden administration officials have done their best to point to good economic news regarding unemployment and the creation of new jobs in 2022.

Claims of a strong labor market clash with reports that the American workforce is rapidly shrinking, with 400,000 more people withdrawing from the labor market since March. American businesses in all industries continue to struggle mightily to fill open jobs since the COVID-19 pandemic slowdown has abated.

The U.S. Department of Labor reports indicate that the U.S. workforce is now smaller by about 600,000 people than in early 2020, just before COVID-19 restrictions began to strangle businesses.

The labor-force participation rate measures the percentage of U.S. residents age 16 and above who are either working or looking for work. That rate fell to 62.1% in July after ticking up following the pandemic earlier this year to 62.4%.

Economists now fear the trap that can be caused by raising interest rates to fight inflation will result in even greater tightening of capital investment, economic production, and job losses.