The Federal Reserve is trying to cool the economy, raising interest rates by 0.75 percentage points in June, the biggest increase since 1994, to tackle rising inflation, while Fed Chairman Jerome Powell has pledged to try to engineer an “easy fall”;
Demand drops, prices fall, without pushing the economy into recession and putting hundreds of thousands of Americans out of their jobs.
In a report in the New York Times, writer Bryce Covert said the problem is that the Federal Reserve doesn't have a good track record of doing that particular trick.
Almost every other attempt since the 1950s to lower inflation by tightening monetary policy has ended in deflation, and as Powell himself admitted to Congress late last month, a recession was "certainly likely."
The writer adds that Wendy Delberg, director of the Hamilton Project at the Brookings Institution, told her that "a slowing economy is always at risk of entering a recession, and it is difficult for the economy to slow down smoothly and without consequences."
The writer asserts that even if the Fed could do this trick, there are many other economic risks that threaten to send us into a recession;
The surge in spending that fueled rapid economic growth after the initial shutdown stems from pent-up demand from the combination of Americans staying at home and receiving financial assistance from the federal government. But both drivers are slowing, and consumer spending is likely to slow with them as well.
As has already happened in discretionary spending in response to inflation, as well as the risks posed by the war in Ukraine and ongoing supply chain fluctuations.
Given all the facts, it is entirely possible if not certain - according to the writer - that the country is heading towards an economic downturn in the near future, and this makes the time now to prepare so that as few Americans as possible suffer, and there are many things that lawmakers can do if They had the political will to act.
unemployment insurance
The program most in need of changes is likely to be unemployment insurance;
Congress backed the program in the early days of the pandemic, broadening the focus of benefits such as restaurant workers and temporary job workers, adding weeks of benefits and increasing them by $600 per week, and without these emergency measures many would likely have received Americans get paid very little for a few weeks, or they won't be able to qualify for insurance at all.
The biggest problem with the issue of unemployment - according to the author - is that it is not a truly coherent program, but it is made up of 53 different programs that differ from one state to another and from one region to another;
States set their own rules for who is eligible to join the program, the amount of benefits, and how long they will last.
In Mississippi, for example, the maximum benefits are $235 a week, compared to $974 in Massachusetts, so Congress should set a strong standard for all those rules;
All states used to provide compensation for at least 26 weeks and could be increased, and it is important that benefits go up and wages go up or fail to provide enough temporary gaps to prevent workers from sliding into extreme poverty after losing their jobs.
The author shows the importance of adjusting such changes before a recession so that the program can "protect us from financial catastrophe, but people lose their jobs all the time even in a dynamic economy, and they need a baseline of support to turn to to get back on our feet again."
system financing
The federal government should also step in and better fund the system.
At the moment, it is up to states to raise taxes adequately for employers in good times to ensure adequate funding in bad times, but this is often difficult;
This pits workers against employers and their taxes, and lawmakers often respond with tax cuts and a failure to modernize unemployment funds before the next downturn.
"This makes them reluctant to be more generous when the economy needs the generosity of the unemployment insurance system," the author quotes Dr. Edelberg as saying.
The author explains that although the federal government supports the program, states must pay the money, and this leads them to choose between increasing taxes or reducing benefits, and often choosing to reduce benefits, if the federal government assumes more responsibility for funding, incentives will be aligned towards a system sufficient to support people in all countries. Circumstances.
And the writer said that more federal money could also help states improve legacy technology systems, which have continued to break down since the start of the pandemic, even small changes such as ensuring that app sites work on mobile phones or having easier ways for workers to reset the password can make the system work. More convenient, especially when thousands of people need to use it at the same time.
Another emergency measure taken by Congress early in the pandemic was to expand eligibility for tax credits to make health insurance available in US Healthcare Act exchanges more affordable;
Medicaid and Children's Health Insurance stopped firing people due to fluctuations in income and personal circumstances, contributing to a 23% increase in enrollment in both after two years of declines.
If these efforts are expanded and the government ensures that people can get Medicaid in states that have refused to expand it, more people will be able to access health care in the event of an economic disaster.
The writer added that there are also forms of income support, such as the child tax credit, which last year became available to all families by sending monthly payments based on the ages of their children.
These payments helped reduce poverty and financial instability, and this support expired at the end of last year, but if it were extended permanently, people would be able to save their families from poverty, and if there was a well-established program that already registered the eligible, it would be easier for Congress to send more money them in stagnation.
One important systemic change is that some of these programs are mandated to respond automatically to changing economic conditions. Turning these programs into so-called automatic stabilizers that operate most powerfully when the economy is flat without Congress taking any action would ensure a robust safety net to protect Everyone regardless of the overall political situation.
The federal government should also step in and better fund the system to face the coming recession (Getty Images)
aid programs
The writer mentioned that the supplemental food assistance program is an entitlement, meaning that the more people who face financial difficulties and become eligible for this program, the federal government increases its spending to ensure that they receive the benefits.
for example;
Unlike the Temporary Assistance Program strictly granted to families in need, the Supplemental Nutrition Assistance Program works quickly and aggressively in a downturn.
However, during both the Great Recession and the pandemic, Congress had to increase food stamps to fight such huge losses of income, and instead it could become mandatory;
As unemployment rises, SFP benefits can automatically increase by certain percentage points, and eligibility restrictions can also be automatically relaxed to ensure nutrition is provided to families who suddenly lost their income during the introduction of rapid stimulus into the economy.
In addition - as the writer shows - unemployment insurance can automatically help families for weeks with high unemployment rates, as the program already contains significant benefits that are supposed to be provided when unemployment reaches certain levels in each state, but these levels are usually So high that it is rarely met.
In addition, the Rental Assistance Program could receive an influx of funding if tenants face a mass eviction, and more federal funding to provide temporary assistance to needy families could be automatically sent to the states so that they can help more people, but the most important thing is that this applies Actions now, not when an epic economic meltdown occurs.
Once the crisis has passed, the author concludes, it is difficult to get lawmakers to focus their limited attention on reforming systems to be ready for the next crisis.