The recession of 1953 was the first recession occurring in the United States since the Great Depression of the 1930s.
With high expenditures to purchase equipment during the Korean War, the inflation rate in the U.S. soared up to 10%, which was far above its pre-war level of 2%.
The end of the Korean War substantially reduced government spending. But, at the same time, the recovered post-war economy resulted in less tax revenue and the federal government experienced a wide budget deficit.
To curb inflation, the U.S. Federal Reserve tightened money supply. Although the inflation rate was gradually dampened, the adverse impact of less money supplied to the economy particularly affected the banking sector. The cost of borrowing soared and interest rates increased.
With high interest rates, the demand for loans declined and the real economy contracted. GDP growth declined from 6.8% in the second quarter of 1953 to -2.4% in the second quarter of 1954—the lowest economic growth during the recession.
The unemployment rate gradually elevated from 2.5% to 6.1% in the summer of 1954, four months after the recession officially ended.
The crisis lasted for 10 months, ending in the first quarter of 1954.