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Biden and Yellen say U.S. economy is in state of transition, not recession

U.S. gross domestic product dropped at a 0.9% annualized rate in the second quarter, driven by a decline in consumer spending and private inventories, as well as weaker housing and business investment. The contraction followed the economy shrinking at a 1.6% pace in Q1, translating into two consecutive quarters of negative growth that are typically defined as a recession (though any official decision is left up to NBER). As mentioned on Thursday, the term "recession" is now as charged as the midterm elections in November, and the White House was the latest to weigh in on the matter as it battles other economic headwinds like four-decade high inflation.
Biden and Yellen say U.S. economy is in state of transition, not recession
President Biden: "Now, there's no doubt we expect growth to be slower than last year, and for the rapid clip we had. But that's consistent with a transition to stable, steady growth and lower inflation. Fed Chairman Powell made it clear that he doesn't think the U.S. is currently in a recession. He said, quote, 'There are too many areas where the economy [is] performing too well.' He said 'too' well - T-O-O. Too well. It's no surprise that the economy is slowing down as the Federal Reserve acts to bring down inflation, but even as we face historic global challenges, we are on the right path and we will come through this transition stronger and more secure."

Treasury Secretary Janet Yellen: "Even in the face of global headwinds, including a war in Europe and successive variants of the pandemic, our economy remains resilient. Our unemployment rate stands at 3.6%, household finances are strong, and industrial output continues to grow. I think what we can constructively do is talk about what is the state of the economy, and as I've tried to describe, the labor market remains exceptionally strong. That is not what we see in past episodes that the NBER has labeled to be a recession. We shouldn't just get involved in the semantics. Let's talk about what's going on."


Bad news is good news?
While it's not entirely clear whether a recession has begun, investors are now betting on a slightly more dovish Fed, with a more moderate pace of rate hikes. Slower growth expectations were displayed in the bond market on Thursday, with the 10-year Treasury yield falling below 2.7% for the first time since early April as the economy loses momentum. Meanwhile, stocks continued to build on a post-Fed rally that was triggered by Jay Powell saying a 75 bps rate hike for September was not guaranteed as the central bank sizes up "the data on a meeting-to-meeting basis."
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True and timely
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