U.S. May Be Headed for Recession—Here's How Long Experts Expect It to Last

The U.S. economy shrank for a second consecutive quarter, according to Thursday's gross national product (GDP) report, suggesting that the nation may be heading into a recession.

The latest Commerce Department data shows that GDP declined for a second time this year, at a -0.9 percent annualized pace from April through June. The year's first quarter showed a GDP decline of 1.6 percent. Two negative GDP quarters in a row are commonly, but not officially, used to define a recession.

Opinions differ on how long a recession could last, given that an economic downturn depends on several factors. But experts agree that public concern over inflation is warranted, even if a recession hasn't been declared yet by the National Bureau of Economic Research (NBER), the official arbiter.

Because the NBER's definition of a recession involves more factors than just "two consecutive quarters of GDP contraction," the call won't come for at least a few months. That said, economists say the troubling state of the economy is not lost on the everyday person, who is likely feeling the effects of rising inflation, less-than-optimal job prospects and steep interest rates.

Economy contracts for second quarter
A new government report shows the U.S. economy shrank for a second consecutive quarter. Above, a $100 bill on top of euro bills. AFP via Getty Images/Daniel Munoz

Arthur Laffer, an economic adviser to Ronald Reagan for both of his presidential terms, is predicting that the earliest turnaround for the economy will be five years. He told Newsweek that his timeline depends on what he sees as two key events: that the GOP can flip the House and the Senate in November's midterm elections and that the party wins the presidency in 2024.

He said that a recessionary economy would require at least two years of congressional leadership that prioritizes free markets and tax cuts, according to conservative economic thinking, before an additional year of such policies.

"If that were the case, January 1, 2027, would be the first time you would actually see a material change in the U.S. economy," said Laffer, who also served as an economic adviser to President Donald Trump during his 2016 presidential campaign.

While Laffer laid out a detailed timeline for the economic slump, others said there are still too many factors up in the air to set a hard deadline. The nation is still dealing with the huge impact COVID-19 had on the global supply chain, and much of the economic uncertainty is tied to the duration and outcome of Russia's war against Ukraine.

In a best-case scenario, things could turn around in a matter of months, according to Joann Weiner, an economics professor at George Washington University.

"If the Fed manages to tame inflation through its interest rate increases while also keeping consumers confident that the economy is not going to tank, then any recession that arises may be short," she said. The 2020 economic contraction lasted just two months, she pointed out.

If the Fed is successful, Weiner said, the recession could be over before its negative effects make a real impact on the economy.

Her predictions echo those of Larry Summers, a top economic adviser to President Barack Obama, who last week said that the economy's future will depend on "how skillful the Fed turns out to be." Summers has drawn national attention since pointing out the Biden administration's missteps on inflation.

Fed's Jerome Powell on interest rates
Federal Reserve Board Chairman Jerome Powell at a news conference Wednesday after the Fed announced it had increased interest rates by three-quarters of a percentage point. AFP via Getty Images/Mandel Ngan

Laffer said that while he and his colleague disagree over the cure for a potential recession, Summers has been "extremely good at analyzing and projecting what's happening."

"I do agree with him verbatim on what has caused this and what damage is done and why it happened," Laffer said. "He and I are on exactly the same page with regard to the prognosis."

Last Sunday, Summers emphasized to CNN that the U.S. needs "strong action" from the Fed. "If we continue with the kind of ostrich policies we had in 2021, there's going to be much, much more pain later," he said.

Douglas Holtz-Eakin, who previously served as the director of the Congressional Budget Office and a senior economic adviser to President George H.W. Bush, agrees that a recession call would ultimately depend on what the central bank does next on interest rates.

"This is a classic situation of once you let inflation become entrenched, you have no good choices," Holtz-Eakin told Newsweek. "You either let people live with inflation, which is clearly politically unsustainable, or you do things to combat inflation and run the risk of a recession, and that's where they are."

Despite the recent reports, Holtz-Eakin doesn't believe the U.S. is in a recession yet because it is still too soon to spot a "broad and sustained decline in the economy," which would span more than two consecutive quarters.

Just because a recession is not here yet, Holtz-Eakin cautions, that doesn't mean it can be ruled out altogether.

"I'm more worried about next year than this year," he said. While the economy may squeak by the second quarter, the next two GDP reports could bring "solid unimpressive growth," he predicted.

"Next year, the impact of Fed tightening will really start to show up," he said. "I think that's where the real risk of a recession lies."