Economists surveyed by The Wall Street Journal have raised the probability of a recession, now placing it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.
The Journal's last survey of economists in April put a recession likelihood in the next 12 months at 28% and it was 18% in January.
Factors that are contributing to the increased likelihood of a recession include higher borrowing costs, an inflation rate of 8.6% currently, and supply-chain problems and commodity-price shocks resulting from the war in Ukraine. The economists surveyed see "dimming chances that a steeper path of interest rate increases by the Fed can cool inflation without inducing higher unemployment and an economic downturn," the Journal writes.
"The Fed is slamming on the brakes. It is hard to avoid a recession … in this situation," said Michael Moran, chief economist at Daiwa Capital Markets America Inc. A recession is defined as two consecutive quarters of negative growth in the nation's gross domestic product (GDP). In the first quarter of this year, GDP decreased by 1.5% at an annual rate.
Economists see the federal-funds rate at roughly 3.3% at the end of this year, up from 2% in the survey two months ago, the Journal stated. "That implies at least three more increases of 0.5 percentage point in 2022. The Fed has signaled it would continue lifting rates this year at the most rapid pace in decades to fight inflation that is running at a 40-year high."
"We now believe the U.S. economy is headed for a mild recession in the coming months," said Greg Daco, chief economist for EY-Parthenon, a consulting firm. "While consumers will continue to spend freely on leisure, travel, and hospitality over the summer, a persistently elevated inflation backdrop, surging interest rates and plunging stock prices will erode spending power, severely curtail housing activity and constrain business investment and hiring."
Former Treasury Secretary Larry Summers, appearing on "Meet the Press," said that, based on historical trends, the economy will likely hit a recession by the end of the year.
"Nothing is certain, and all economic forecasts have uncertainty," said Summers. "My best guess is that a recession is ahead."
Treasury Secretary Janet Yellen, however, has said that a recession is not inevitable. On "This Week" on ABC, she said: "I expect the economy to slow. It's been growing at a very rapid rate as the economy, as the labor market is recovered and we reached full employment. It's natural now that we expect to transition to steady and stable growth. I don't think recession is at all inevitable."
The Wall Street Journal's poll of 53 economists was conducted June 16 to 17, after the Fed voted to sharply raise the benchmark federal-funds rate by 0.75 percentage point to a range between 1.5% and 1.75%.
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