According to Heather Boushey, the Biden administration believes that large-scale expenditures will mitigate the downturn.
According to a top White House adviser, the US economy can still achieve a "soft landing" as large-scale government investments implemented by Joe Biden help bolster the labour market in the months and years ahead.
Heather Boushey, a member of the White House Council of Economic Advisers, made the remarks as many analysts predict a severe slowdown, if not a recession, as the Federal Reserve pursues the most aggressive strategy to raise interest rates and combat high inflation since the early 1980s.
This month, Fed officials predicted that the US will narrowly avoid a recession in 2023, with GDP rising by only 0.5%. The unemployment rate in the United States is expected to grow from 3.7% in November to 4.6% by the end of next year, meaning tens of thousands of job losses.
But Boushey noted that a succession of measures passed by Congress and signed by the president during his first two years in office had provided "funding streams" for infrastructure, clean energy and semiconductor manufacturing that would help offset any slump for the "real economy".
While there continued to be "challenges" and "unforeseen things", from Covid-19 to the crisis in Ukraine, damaging the outlook, she said, the current law will be "pushing in the opposite direction".
"We remain hopeful that we will be able to witness the smooth landing that we seek," she said. "Time will tell, but I believe the components are in place to give us a fighting shot."
Even with the Fed's monetary tightening in full swing, the US labour market fared better than projected during the last three months, with average monthly job increases of 272,000 - a sign of resilience welcomed by the White House.
"We have delivered the sharpest job recovery of any recent recovery, and the fact that it is still ongoing is very astonishing."
Boushey cited three pieces of legislation that would help the US labour market: the Bipartisan Infrastructure Act, which was passed in November 2021, the Chips and Science Act, and the Inflation Reduction Act, which was passed in the summer of 2022.
"We are witnessing private sector investments on top of public sector investments in the real economy and the industrial backbone of the United States," she said.
Meanwhile, inflation has begun to reduce, which has reassured the Biden administration, with the annual increase in the consumer price index falling from a peak of 9.1% in June to 7.1% in November, albeit it remains far too high, according to Fed officials.
According to the American Automobile Association, the average gasoline price in the United States was $3.1 a gallon this week, down from $3.6 a month ago and even lower than $3.2 a year ago, before Russia's full-scale invasion of Ukraine.
While the Fed is largely responsible for battling inflation, the White House has attempted to limit price increases this year by releasing large amounts of oil from the Strategic Petroleum Reserve. "The [consumer price index] is down two full points from last summer, which is a significant achievement," Boushey added. "We had a plan, which the president carried through, and you can see the benefits for the American people."
The Federal Reserve's efforts to calm the economy are far from finished. It increased its benchmark interest rate this year from near zero to a target range of 4.25 to 4.50 percent. Most officials expect it to rise beyond 5% next year and stay there at least until 2024, according to the most current predictions given in mid-December.
A soft or "softish" landing was still "possible", Fed chair Jay Powell said at his final press conference of the year, though he added that "events of the last several months have enhanced the degree of difficulty". In early December, 85% of economists polled in a joint poll with the University of Chicago's Booth School of Business predicted a recession the next year.
The US economy is vulnerable not only as a result of the Fed's policies, but also as a result of the risk of fresh foreign shocks, such as the conflict in Ukraine and China's battle to contain Covid-19 as it relaxes its lockdowns.
Domestically, because Republicans are set to take control of the House of Representatives in January, the White House is expected to have less flexibility in dealing with any economic or financial crisis.
Boushey, on the other hand, was convinced that total gridlock could be avoided. "Divided government is always difficult, but President Biden has shown that he is prepared to work with anyone — Democrat, Republican, or independent — to get things done."
The greatest risk that Washington poses to the US economy is if Congress fails to agree on an increase in the debt limit next year, which may result in a federal debt default. Republicans have already warned that they will want significant expenditure cutbacks in exchange for a vote to extend the debt ceiling, which Democrats and the White House will oppose, resulting in a high-stakes standoff.
“The debt ceiling does remain a challenge,” Boushey said. “Government defaulting on their debt would be potentially very bad for the US economy . . . and would not benefit the American people. So the president will be doing everything he can do to have us not enter that situation.”
By fLEXI tEAM