Biden betting strong job market will shield economy from slump

WASHINGTON (AP) — The U.S. economy faces plenty of threats: War in Ukraine, high grocery bills, spiking gasoline prices, splintered supply chains, the lingering pandemic and rising interest rates that slow growth.

The Biden White House is betting the U.S. economy is strong enough to withstand these threats, but there are growing fears of a coming economic slump among voters and some Wall Street analysts.

The next few months will test whether President Joe Biden built a durable recovery full of jobs with last year's $1.9 trillion relief package, or an economy overfed by government aid that could tip into a downturn. On the line for Democrats ahead of the midterm elections is whether voters see firsthand in their lives that inflation can be tamed and the economy can manage to run hot without overheating.

Brian Deese, director of the White House National Economic Council, told reporters this week that the 3.6% unemployment rate and last year's robust growth puts the U.S. in a safe place compared to the rest of the world.

"The core question is whether the strength of the US economy is now an asset or a liability," Deese said. "What we have done over the course of the last 15 months is driven a uniquely strong economic recovery in the United States, which positions us uniquely well to deal with the challenges ahead."

But others see an economy that could struggle to preserve growth while reducing inflation now running at a 40-year high of 7.9%. The Federal Reserve has signaled a series of benchmark interest rate increases and other policies to slow inflation this year, yet Russia's invasion of Ukraine has destabilized the global energy and food markets in ways that could push prices upward.

Deutsche Bank on Tuesday became the first major financial institution to forecast a U.S. recession. And Harvard University economist Larry Summers — a Democrat and former treasury secretary — noted that the U.S. economy has gone into recession within two years each time inflation eclipsed 4% and unemployment was below 5% as they are now.

Joe LaVorgna, who worked in the Trump White House and is now chief economist for the Americas at Natixis, said he expects economic growth this year to be just below 1%, a potentially dangerous level.