Washington D.C, United States of America (USA)- The US Gross Domestic Product (GDP) has shrunk by 0.9 percent on an annualized basis from April through June.
Businesses in recent quarters have tried to replenish stockpiles drawn down during the pandemic and in trying to adjust for supply chain upheaval, they have found themselves overstocked at a time when consumers have pulled back on some purchases.
The drop in the GDP reflects decreases in government spending, retail trade, and other sectors in the country.
On Wednesday, the Federal Reserve raised the benchmark interest rate by three-quarters of a percentage point in its ongoing battle to tamp down raging price pressures that are squeezing American families.
It was the second straight 75 basis point increase, and the fourth rate hike this year, as US Central Bankers move aggressively to cool the strongest surge in inflation in more than four decades, without derailing the world’s largest economy.
Although Thursday’s initial estimate marked a sharp drop from the 6.7 percent expansion the economy underwent in the second quarter of 2021, the White House has been adamant that the world’s largest economy, despite being buffeted by decades-high inflation and a cascade of supply shocks, remains fundamentally sound.
“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,” said President Joe Biden.
At the same time, Federal Reserve chairperson, Jerome Powell, said he does not think the country is currently in a recession but cited that an even bigger rate hike is possible.
Powell reiterated the importance of considering various key economic measures as the Central Bank determines future rate moves. However, Powell said the first read of a GDP report should be taken with a pinch of salt.
“Inflation is much too high. An unusually large increase could be appropriate but we are trying to do just the right amount. We are not trying to have a recession and we don’t think we have to because there are too many areas of the economy that are performing too well.
It’s necessary to have growth slow down. We think that there’s a path for us to be able to bring inflation down while sustaining a strong labour market,” said Powell.
Inflation in the US rose to 9.1 percent last month, the fastest rate since 1981, driven mainly by higher prices for fuel and food.
