RICHMOND, Va. (WRIC) — Interest rates increased on Wednesday for the fourth time this year to cool off inflation. Even as Virginia’s economy shows signs of growth, Governor Glenn Youngkin is calling this a “moment of real concern.”
“I’m worried, although I’m not panicked right now,” Youngkin said when asked about fears that a recession is near.
The Federal Reserve’s decision to increase the cost of borrowing will drive up credit card debt and some loans. The goal is to decrease demand and bring down inflated prices for food, travel and housing.
“The most powerful tool that can be used against inflation, and this is whether its a Democratic president or Republican president, is slowly raising interest rates and I think the Fed waited too long,” U.S. Senator Mark Warner told reporters on Wednesday before the announcement.
Last month, nearly 70% of leading economists polled by the Financial Times predicted the U.S. economy will tip into recession in 2023, a forecast President Joe Biden’s Administration has downplayed.
In a press conference on Wednesday, Federal Reserve Chair Jerome Powell said the economy is not currently in a recession but he didn’t rule the possibility in the future.
“We’re not trying to have a recession and we don’t think we have to. We think there is a path for us to be able to bring inflation down while sustaining a strong labor market…along with, in all likelihood, some softening in labor market conditions,” Powell said. “We know that the path has clearly narrowed really based on events that are outside of our control and it may narrow further.”
A report due out on Thursday could show the economy shrinking for a second consecutive quarter, which would be another warning sign of a recession.
But just because the technical definition of a recession is met on paper doesn’t necessarily mean it will match the reality on the ground, according to Dr. Terry Clower, director of George Mason University’s Center for Regional Analysis.
Clower said, unlike past recessions, Virginia’s labor market remains strong.
“I just don’t think that we’re going to necessarily tip over into the kind of recession people are used to where they lose their job and they don’t find other alternatives,” Clower said.
According to Gov. Youngkin’s office, the state’s unemployment rate fell to 2.8% in June as the number of jobless workers contracted by 7,542. Youngkin said the rate outpaces the national average of 3.6% and represents the largest drop Virginia has seen in a year.
Youngkin also announced the number of employed Virginians has expanded by 94,000 since Feb. 1, 2022. Compared to a year ago, on a seasonally adjusted basis, nine of eleven major industry divisions experienced employment increases.
“Businesses are growing, jobs are available and Virginians are taking those jobs. That is a super, super strong anecdote to overall economic pressure. So job one is to get people into jobs,” Youngkin said.
Good news aside, Virginia has failed to bring more working-age adults off from the sidelines — a focus for Youngkin. The labor force participation rate, or the proportion of Virginians age 16 and older that is employed or actively looking for work, was unchanged at nearly 64% in June.
Youngkin said the state has roughly 300,000 jobs that are available right now. Amid economic uncertainty, he said the focus needs to be on training workers and connecting them with those opportunities.
Meanwhile, Warner raised concerns that overstating fears of a recession could prompt consumers to pull back spending and perpetuate the problem.
“If you have people banging the drum, ‘recession, recession, recession,’ it becomes in many ways a self-fulfilling prophecy and maybe that’s good for short-term politics for some in this country but it’s not good for the economic well-being of Virginians and Americans,” Warner said.
While it’s unclear if the future will bring a recession, Clower said this likely won’t be the last time interest rates increase.
“Borrowing costs are going to continue to rise probably well into next year,” Clower said.