Wall Street Journal Poll: Recession Risks Are Rising Rapidly

Economists interviewed by The Wall Street Journal have increased the likelihood of a recession, putting it now at 44% over the next 12 months, a level typically seen only at the edge of or during actual recessions.

The Journal’s latest survey of economists in April put the probability of a recession over the next 12 months at 28% and it was 18% in January.

Factors contributing to the increased likelihood of a recession include higher borrowing costs, inflation rate of 8.6% currently, and the supply chain issues and commodity price shocks resulting from the war in Ukraine. Economists surveyed see “increasing likelihood that a steeper path of interest rate hikes by the Fed could cool inflation without inducing higher unemployment and an economic slowdown,” the Journal writes.

“The Fed is stepping on the brakes. It’s 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 product growth. gross of the country. domestic product (GDP). In the first quarter of this year, GDP fell 1.5% on an annual basis.

Economists see the federal funds rate around 3.3% at the end of this year, down from 2% in the survey two months ago, the Journal said. “That implies at least three more 0.5 percentage point hikes in 2022. The Fed has signaled it will continue to raise rates this year at the fastest pace in decades to fight inflation that is hitting its highest point. high level for 40 years.”

“We now believe the US economy is heading for a mild recession in the coming months,” said Greg Daco, chief economist for EY-Parthenon, an advisory firm. “While consumers will continue to spend freely on leisure, travel and hospitality over the summer, an environment of persistently high inflation, soaring interest rates and falling stock prices will erode the power purchase, will significantly reduce real estate activity and limit business investment and hiring.”

Former Treasury Secretary Larry Summers, appearing on “Meet the Press,” said that based on historical trends, the economy is likely to experience a recession by the end of the year.

“Nothing is certain, and all economic forecasts are uncertain,” Summers said. “My best guess is that a recession is coming.”

treasury secretary Janet Yellen, however, said a recession is not inevitable. On ABC’s ‘This Week’ she said: “I expect the economy to slow down. It’s been growing at a very fast pace as the economy, the labor market recovers and we We have reached full employment. It is natural now that we expect a 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 taken from June 16-17, after the Fed voted to raise the benchmark federal funds rate sharply by 0.75 percentage points, within a range between 1.5% and 1.75%.

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