The Current Cycle of Price Growth Could Mean An Economic Downturn

vacuum sucking up dollar bills
Alyssa Guzik
July 5, 2022

The last time that the U.S. saw a recession was in 2020 - it lasted for  two months, and was the shortest in American history. Today, the cost of goods is rising the fastest that they have in 40 years. 

But how does that signal recession?

Economies naturally go through cycles - inflation is the expansion phase and a recession is the contraction phase. When prices rise too much, too quickly, something will eventually cause them to level out or fall.

That something is typically in the hands of the Federal Reserve.

The Federal Reserve acts like a balancing force for the economy. It controls how much interest consumers and businesses pay on everything from loans to savings accounts. When inflation is high, the Federal Reserve will increase interest rates to try to slow the economy.

Private investments, home building and loan requests have all dropped in recent months. The first quarter of the year also saw a decrease in the overall market value even as the economy continued to expand. Usually, all of these things happen together - right before a recession.

When the economy expands, eventually, it has to contract. The Federal Reserve is making aggressive moves to try and stabilize the economy. Ultimately, the economy WILL stabilize and a recession will hit. The question is how long will it stay around?

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