Survey: There is a 52% chance of a coming recession

The U.S. economy is at a critical juncture as high inflation persists and the Federal Reserve is raising interest rates at the most aggressive pace in decades — even pundits are now sounding the recession alarm.

Economists polled for Bankrate’s second-quarter economic indicator say there’s a 52% chance the US economy will contract over the next 12 to 18 months, a drastic overhaul of the economic outlook after a third only of respondents predicted a recession in the previous quarter. survey.

Only three of the 17 experts in the survey maintained the expectation of an almost 1 in 3 chance of a slowdown, while the majority (65%) put the economy’s chances of recession at 50%. or more. An economist has said the US economy has a 100% chance of contracting.

The future is far from certain and recessions are almost impossible to predict. Yet the increasing likelihood of an event occurring illustrates the problems that have been piling up against the financial system. Ongoing supply chain pressures from the ongoing coronavirus pandemic and the conflict in Ukraine are among the issues that have pushed inflation to the highest levels since the 1980s. But they have also put the Fed in a defenseless position, with the central bank having no means of cooling the energy or food prices that weigh most heavily on consumers’ wallets.

Illustrating how many storm clouds are gathering over the economy, 82% of economists said risks are tilted to the downside over the next 12-18 months, down from 68% in the first quarter survey. Only two economists said the risks were on the upside, while only one said the risks were balanced.

Even if the Fed’s rapid rate hikes and decades-high inflation rock the financial system, economists don’t expect it to be as bad as the coronavirus pandemic-induced slowdown or the Great Recession that preceded it.

“A growing or high risk of recession does not necessarily mean the certainty of a severe recession,” said Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief. “Compared to the experiences of the past two decades, the emerging situation of the economy may well be different from others once again. People will need to remain nimble with their personal finances as best they can, be aware of and react to changing and possibly worsening.

Recession risks rise as high inflation persists

Consumer inflation accelerated again in May and rose at its fastest pace in the pandemic era, jumping to a faster than expected pace of 8.6% from a year ago. a year, according to the Bureau of Labor Statistics. Economists — and some Fed officials themselves — predicted inflation would peak in early 2022.

Inflation has not only soared in sectors ravaged by the pandemic, but also in services and rents. Even more haunting for Fed officials, key indicators tracking consumer expectations for future inflation were beginning to rise. All of these factors could make stubbornly high inflation more sustainable.

The news put the Fed in a difficult position ahead of its June meeting. After signaling to the markets that they were preparing to raise interest rates for the third consecutive meeting by half a percentage point, officials abandoned that commitment less than a week before officially announcing their rate hike. rate in June. Instead, they ended up raising interest rates by three-quarters of a point – the biggest rate hike since 1994 – and airing expectations to raise interest rates to a target range of 3 .25 to 3.5%, the highest since 2008.

“The Fed has a very difficult task,” says Gus Faucher, chief economist at PNC Financial Services Group. “It is possible to slow growth and inflation without a recession, but there is little margin for error. Furthermore, there is the potential for further negative shocks to the outlook for growth and inflation that could lead to a recession.

Economists in the Bankrate survey largely see the Fed following, with the majority bracing for a fed funds rate in the upper end of the 3-4% range.

Inflation is a major problem for the US economy. Nearly 3 in 4 Americans (or 74%) said rising prices were hurting their finances, according to a March Bankrate poll. But the Fed risks doing too much too soon. Making the job even harder, Fed officials have major blind spots, working with backward-looking data and entering an economy that was already expected to slow from last year’s significant fiscal stimulus.

Inflation is also more than four times above the Fed’s 2% target and supply issues are still contributing to these pressures, calling into question how high rates will need to rise before they start to rise. cool prices.

“The need for the Fed to bring inflation back to its 2% target places the risks for the US economy on the downside,” said Scott Anderson, executive vice president and chief economist at Bank of the West. “The Fed has a 50/50 chance of landing that plane without causing a recession, but it needs help from the supply side of the economy. supply chains need to unravel.

Hear from the experts

Methodology

The Second Quarter 2022 Bank Rate Economic Indicators Survey of Economists was conducted from June 20 to June 27. Survey requests were emailed to economists across the country, and responses were voluntarily submitted online. Responding were: Ryan Sweet, senior director of economic research, Moody’s Analytics; Yelena Maleyev, Economist, Grant Thornton LLP; Odeta Kushi, Deputy Chief Economist, First American Financial Corporation; Lawrence Yun, Chief Economist, National Association of Realtors; Robert Hughes, Senior Research Professor, American Institute for Economic Research; Joseph Mayans, Director of US Economics, Experian; Mike Fratantoni, Chief Economist, Mortgage Bankers Association; Bernard Baumohl, Chief Global Economist, The Economic Outlook Group; Scott Anderson, Executive Vice President and Chief Economist, Bank of the West; Bernard Markstein, President and Chief Economist, Markstein Advisors; Mike Englund, Chief Economist, Action Economics; John E. Silvia, Founder and President, Dynamic Economic Strategies; Bill Dunkelberg, Chief Economist, National Federation of Independent Business; Tenpao Lee, Professor of Economics, Niagara University; Robert Frick, Business Economist, Navy Federal Credit Union; Gus Faucher, Chief Economist, PNC Financial Services Group; and Peter Morici, economist and professor of business, University of Maryland.