Economists Increasingly Think US In On The Edge Of A Recession

Economists Increasingly Think US In On The Edge Of A Recession

Harry Wilmerding on April 11, 2022

Economists increasingly think the U.S. economy will enter into a recession within the next 12 months, according to a Wall Street Journal survey.

Experts projected a 28% chance that the U.S. will slip into a recession by 2023, compared to the 13% estimate from 2021, the WSJ survey found. Economists also decreased their projection for U.S. Gross Domestic Product (GDP) growth, signaling a 2.6% increase in the fourth quarter of 2022, down a full percentage point from six months prior.

“Risks of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation,” Joe Brusuelas, chief economist at RSM US LLP, told the WSJ.

Economists surveyed by The Wall Street Journal this month on average put the probability of the economy being in recession sometime in the next 12 months at 28%, up from 18% in January and just 13% a year ago.https://t.co/VTuYcB1SbL

— Catherine Rampell (@crampell) April 10, 2022

“The Federal Reserve’s preferred inflation metric is at a four-decade high,” E.J. Antoni, a research fellow at the Heritage Foundation, previously told the Daily Caller News Foundation. “The last time inflation was running this hot, the Fed had interest rates over 13%, as opposed to today when they are at a quarter of a percent.”

The Fed announced on March 16 that inflation has increased faster than projected and pledged to increase the federal funds rate by .25% to .50% to bring down the soaring prices. Roughly 84% of the survey respondents project the Fed will hike rates by a .50% in early May while over 57% see at least two increases through 2022.

“The Fed is laughably behind the curve, as they have been for essentially a year,” Antoni added.

Economists’ recession probability also reached 28% in August 2007, months before the U.S. economy entered one of its worst economic downturns in history, the WSJ reported.

Meanwhile economists see inflation remaining elevated, with a 7.5% rate in June 2022 and dipping down to 5.5% by December. Experts believe inflation will decrease to 2.9% by 2023, which would be close to the Fed’s preferred target rate, according to the WSJ.

“To be seen not fighting it is politically unwinnable. But the only policy response the Fed has is to tighten.” Amy Crew Cutts, of AC Cutts & Associates LLC, told the WSJ, adding that there is a 70% chance of a recession within the next year. “Fed actions to curb inflation will lead to a recession sooner rather than later.”