Economists say a Fed rate hike increases the likelihood of a US recession by 44% over the next 12 months.
Economists are The Wall Street Journal The survey significantly raised the probability of a recession, to 44% over the next 12 months, a level typically seen only when the economy is on the brink or in actual recessions.
In the last survey, earlier in January, the probability of a US recession that experts gave was 18%. Even since the survey was conducted in mid-2005, a 44% recession probability is a rare outcome at times when the recession has not actually occurred.
In December 2007, the month in which the 2007-2009 recession began, economists assigned a probability of 38%. In February 2020, when the last recession hit, the probability was forecast to be 26%.
Experts raised the probability of a recession due to factors including rising interest rates, dizzying inflation, supply chain problems and commodity price shocks stemming from the war in Ukraine. Most are less optimistic about the Fed speeding up rate hikes without triggering higher unemployment and a recession.
“The Fed is slowing inflation. It’s hard to avoid a recession in this situation,” said Michael Moran, chief economist at Daiwa Capital Markets America. Economists’ inflation forecasts also rose markedly to 7% this year, compared with 5.5% in the April survey.
“We now believe the US economy is headed for a mild recession in the coming months,” said Greg Daco, chief economist at consulting firm EY-Parthenon. The expert believes that consumers will continue to spend comfortably on leisure activities, travel and hotels in the summer.
However, in the context of rising inflation and interest rates, future stock price declines will erode spending power, affect the real estate industry and limit business investment and hiring.
Another study published on June 17 by economists at BofA Securities said that the probability of a US recession next year is 40%. Accordingly, they forecast GDP to slow to almost zero in the second half of 2023, when the impact of the monetary tightening on the economy becomes apparent. Growth will recover modestly in 2024.
Ethan Harris, Global Economist at BofA, forecasts that the Fed will continue to raise interest rates to keep the base rate above 4%. He said the Fed was playing “a dangerous game”. However, BofA admits the risk of a recession right this year is low.
From the perspective of managers, Finance Minister Janet Yellen on June 19, said that the recession that many Americans fear coming will not happen. “I expect the economy to slow. Right now, we expect a transition to steady and steady growth, but I don’t think a recession is certain,” she said.
Although the head of the Treasury Department is optimistic that the US will avoid a recession, the global economy is still facing serious threats in the coming months with the war continuing in Ukraine, inflation rising. boom and the Covid-19 pandemic. “Clearly, high inflation is not acceptable,” Ms Yellen said.
However, she doesn’t believe the drop in consumer spending will lead to an economic downturn. She thinks the US labor market is at its strongest since the post-war period and predicts that inflation will slow in the coming months.
Economists in the survey of WSJ forecasts unemployment will rise as the Fed raises rates, although it sees the rate as still relatively low compared to history. On average, they forecast the unemployment rate to rise from 3.6% in May to an average of 3.7% by the end of 2022 and 4.2% by the end of 2023.
One bright spot is that economists still expect the economy to grow this year, even though they cut their growth forecast in half in the most recent survey. Accordingly, they forecast inflation-adjusted GDP to increase 1.3% in the fourth quarter of 2022 compared to the same period in 2021, down from 2.6% in the previous survey. Last year, the US economy grew 5.5%, the fastest since 1984.
Session An (according to WSJ, Reuters, CNBC)