(CNS News) – Senator Jon Ossoff (D-Ga.) said demand-destruction tied to inflation and a tightening of monetary policy are among the factors causing the current economic contraction. In the first two quarters of this year the GDP growth was negative, a traditional sign that the economy is in recession.
At the U.S. Capitol on July 28, CNS News asked Ossoff, “The economy has contracted for two consecutive quarters now. What is causing that contraction?”
“Well, I think the economy is complex and driven by a variety of factors,” said Ossoff. “There’s been some demand-destruction as a result of prices and, of course, we’re currently seeing a tightening of monetary policy [by the Federal Reserve]. These are some of the factors.”
Inflation, which is too much money chasing too few goods, pushed demand for products up, which raised the prices of those products.
When questioned about how Congress should respond to the economic contraction, Ossoff added, “You know, right now, Senator [Joe] Manchin [D-W.Va.] has circulated a draft of legislation that includes a significant measure of deficit reduction, as well as policy intended to reduce the prices that Americans pay for prescriptions. I will be reviewing that proposal in great detail in the coming days.”
Manchin and Senate Majority Leader Chuck Schumer (D-N.Y.) introduced the Inflation Reduction Act, which will spend approximately $680 billion over the next 10 years, if the Obamacare subsidies in the bill are extended, according to a Penn-Wharton analysis, as reported in National Review.
The fate of the deal is not clear yet as Senator Kyrsten Sinema (D-Ariz.), a centrist and occasional holdout on Democratic priorities, has not given comment on the bill.
Data from the Bureau of Economic Analysis indicate that the United States’ Gross Domestic Product (GDP), the total value of the U.S. economy, has shrunk for two consecutive quarters. In the first quarter of this year, the economy shrank by 1.6% while in the second quarter it shrank by 0.9%.
As of the end of June, prices are rising at a rate of 9.1% annually. The last time inflation was that high was in 1981, when inflation surpassed 11%.
“A recession is a significant, widespread, and prolonged downturn in economic activity,” according to Investopedia. Since they typically last for at least six months, “one popular rule of thumb is that two consecutive quarters of decline in a country's Gross Domestic Product (GDP) constitute a recession.”
However, a recession is not officially declared until the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee identifies the current state of the economy as being in recession. The NBER explains that the committee evaluates the economy holistically based on a variety of factors, but that GDP, consumer spending, and employment numbers are weighed heavily in their decisions.
The NBER has so far declined to declare an official recession.