It’s safe to assume that the “R” word will come up in Federal Reserve Chair Janet Yellen’s testimony in front of Congress tomorrow. That “R” word is recession.
New York Times senior economics correspondent Neil Irwin said the possibility of a recession is slight. But how can we tell if a recession is upon us?
Irwin said we can tell if a recession is coming based on what’s going on in emerging markets abroad. If emerging markets start to contract where they were once growing — like in China — it could show the possible causes of a recession. But that’s not the only thing.
“This on its own shouldn’t really effect the U.S. economy that much,” Irwin said. “U.S. trade flows with Asia, with Latin America, they’re big. But in the grand scheme of the U.S. economy, that shouldn’t be enough to bring it down.”
Other telltale signs of a recession? Less oil exploration, less industrial activity and even less exports can come together to foster a recession, Irwin said. But the U.S. is doing strong, especially in terms of job growth.
“The question is, as these forces build and get stronger, is the capacity of the U.S. to really deal with it limited?” Irwin said. “Is the Federal Reserve not in a place where it might have been years ago to combat any weakness?”
And that’s a question Yellen might have to answer. Tomorrow marks Yellen’s first public appearance since her December 2015 press conference at which she discussed the federal interest rate increase.