Saudi Press

Saudi Arabia and the world
Tuesday, Oct 07, 2025

The US is in a recession and it’s worse than you think

The US is in a recession and it’s worse than you think

The Fed’s solution to record inflation is based on flawed logic, and US government policy is only compounding supply issues
The US economy shrank by an estimated 0.9 percent in the second quarter of this year, the second quarter in a row that saw a contraction, which is, according to the Oxford English Dictionary, the definition of a recession. In response to these worrying figures, the White House has sought to downplay fears by calling the decline “no surprise” as the economy slows down in response to Federal Reserve interest rate hikes.

But make no mistake. The economic situation in the US is indeed worrying. That’s because even if the recession in the country is artificially induced by the Fed, it is still a recession. And not only does that pose very real risks, but the solution sought by the Fed also looks incomplete and obsolete, at best.

First, we need to understand why the Fed is raising interest rates. Put simply, this is done to tame inflation, which is at its highest since 1981, primarily driven by rising fuel and food prices. According to the Fed’s line, inflation is being spurred by out-of-control consumer spending in what they see as a red-hot economy. Thus, raising interest rates and in doing so making loans more expensive for both businesses and consumers, the Fed believes, should help cool down the economy, keep down spending and rein in inflation.

But this line is evidently flawed. It is believed that increased spending, on the back of rising wages and pent-up demand from the ongoing Covid-19 pandemic that was compounded by government stimulus, is driving inflation. In real terms, however, neither of these things are true. Wages have actually gone down in real terms and demand seems to be just re-attuning to pre-pandemic levels, with many sectors never recovering from pandemic-induced demand shortages.

On the contrary, corporations taking advantage of the ongoing crises to hike prices seems to be a major factor – and one that even the White House can acknowledge. That is, lack of competition is one of the primary drivers of inflation. This is quite evident in the energy sector, with companies like BP, Exxon, Chevron and Shell posting record profits on the back of surging fuel prices and unregulated stock buybacks. That means this is a supply-side issue rather than a demand-side issue, which is what current monetary policy is trying to address.

Another issue on the supply side is the fact that the Covid-19 pandemic is not over. Resurging cases driven by the BA.4 and BA.5 Omicron subvariants can and are knocking out significant portions of the workforce at any time. These successive waves are major constraints on supply chains.

It’s also important to point out that climate change is another supply constraint. Each and every industry on the planet is affected by the changing climate and last year saw weather events that disrupted key industries, such as lumber, semiconductors and basic food items. These issues have, of course, persisted because the deleterious effects of climate change are getting worse.

At the same time, government response to climate change has not been enough to alleviate the problems - without offering sufficient alternatives, lack of investment in new oil and gas projects only drives energy prices up, leading to record profits for fossil fuel giants.

So, rather than Congress passing legislation or formulating some plan to end the pandemic, address climate change or break up monopolies, the Fed is stepping in to address what it sees as insane consumer spending. But it’s not actually consumers frivolously spending more money; it’s just people spending more money for the same things because our supply chains are being disrupted by a mixture of disease, extreme weather and corporate greed.

What’s even more worrying about the current economic outlook is that there is no comparable historical scenario to look to for guidance. In the late 1970s and through the 1980s when the world was wrestling with a similar mixture of recession and inflation, dubbed ‘stagflation,’ globalization – that is, the integration of the world economy – helped create economic growth and open up new markets for American multinationals.

Perhaps nothing was more consequential in this period than normalized trade relations between the US and China, as well as China’s reforming and opening-up policies that began under Deng Xiaoping. But now, the ongoing tensions and trade war between China and the US, with US-led efforts to decouple Western economies from China, are orienting the global economy in a de-growth direction.

That is, attempts to de-globalize, which I would argue are being tested right now as the Western world attempts to cut Russia off from the global economy, will create a reverse of the successful globalization period. It will only compound the economic hurdles faced by the American and Western supply chains.

Despite cheery statements from the White House, the US economy is very much in a recession – and the tools the Fed is using to solve its compounding economic stagnation and runaway inflation are not sufficient. If anything, US government policy at every level is going to make things worse.
Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Syria Holds First Elections Since Fall of Assad
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
UK, Canada, and Australia Officially Recognise Palestine in Historic Shift
New Eye Drops Show Promise in Replacing Reading Glasses for Presbyopia
Dubai Property Boom Shows Strain as Flippers Get Buyer’s Remorse
Top AI Researchers Are Heading Back to China as U.S. Struggles to Keep Pace
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
UAE-US Stargate Project Poised to Make Abu Dhabi a Global AI Powerhouse
Trump and Starmer Clash Over UK Recognition of Palestinian State Amid State Visit
Saudi Arabia cracks down on music ‘lounges’ after conservative backlash
Saudi Arabia Signs ‘Strategic Mutual Defence’ Pact with Pakistan, Marking First Arab State to Gain Indirect Access to Nuclear Strike Capabilities in the Region
Sam Altman sells the 'Wedding Estate' in Hawaii for 49 million dollars
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
Kuwait opens bidding for construction of three cities to ease housing crunch.
This Week in AI: Meta’s Superintelligence Push, xAI’s Ten Billion-Dollar Raise, Genesis AI’s Robotics Ambitions, Microsoft Restructuring, Amazon’s Million-Robot Milestone, and Google’s AlphaGenome Update
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
Could AI Nursing Robots Help Healthcare Staffing Shortages?
Turkish authorities seize leading broadcaster amid fraud and tax investigation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Did the Houthis disrupt the internet in the Middle East? Submarine cables cut in the Red Sea
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Tether Expands into Gold Sector with Profit-Driven Diversification
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
Israeli Airstrike in Yemen Kills Houthi Prime Minister
After the Shock of Defeat, Iranians Yearn for Change
YouTube Altered Content by Artificial Intelligence – Without Permission
Iran Faces Escalating Water Crisis as Protests Spread
More Than Half a Million Evacuated as Typhoon Kajiki Heads for Vietnam
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
Beijing is moving into gold and other assets, diversifying away from the dollar
Cristiano Ronaldo Makes Surprise Stop at New Hong Kong Museum
×