US Economists Say "44% Chance of Recession Within a Year" ... Higher Than Just Before the Financial Crisis

[Asia Economy New York=Special Correspondent Joselgina] American economists forecast nearly a 50% chance of a recession hitting the United States within the next year. This figure is higher than that of December 2007, when the global financial crisis began.

The Wall Street Journal (WSJ) reported on the 19th (local time) that a survey of 53 economists showed an average response of 44% for the 'probability of a recession within the next 12 months.' The survey was conducted on June 16-17, immediately after the Federal Reserve (Fed), the central bank, decided to raise interest rates by 0.75 percentage points at once to curb soaring inflation.

WSJ evaluated that such a response rate is typically seen only when the economy has already entered a recession or is on the verge of one. Since the related survey began in mid-2005, such a high figure has rarely appeared. It was 38% in December 2007, just before the global financial crisis, and 26% in February 2020, just before the COVID-19 outbreak.

The recent sharp rise in recession concerns is attributed to inflation at its highest level in 41 years, rising loan interest rates due to Fed rate hikes, global supply chain disruptions, and commodity price shocks caused by Russia's invasion of Ukraine. With these domestic and international adversities overlapping, the likelihood of a scenario where the Fed can normalize monetary policy without triggering an economic downturn has significantly decreased.

In this survey, economists' forecast for the annual increase rate of the US Consumer Price Index (CPI) by the end of this year averaged 6.97%. This is higher than the 5.52% forecast in April. The annual inflation forecast for 2023 also rose from 2.86% in April to 3.26% in June.

The expected benchmark interest rate by the end of this year also jumped from 2.014% in April to 3.315% in June. This is interpreted as a result of the Fed's recent giant step of raising rates by 0.75 percentage points for the first time in 28 years, with the possibility of another hike next month still open.

Soaring inflation and rising interest rates are expected to negatively impact economic growth and the labor market. The economists' forecast for the US annual Gross Domestic Product (GDP) growth rate this year is 1.28%, only half of the 2.57% forecast in April. The year-end unemployment rate is projected to slightly increase to 3.7% from 3.6% in May. The unemployment rate forecast for the end of next year is 4.19%.

Michael Moran, Chief Economist at Daiwa Capital Markets America, said, "The Fed has slammed on the brakes. In this situation, it is difficult to avoid a recession." Greg Daco, Chief Economist at consulting firm EY-Parthenon, stated, "The US economy is heading toward a mild recession in a few months," adding, "Soaring interest rates and plummeting stock prices will erode purchasing power and severely dampen housing activity."

Meanwhile, senior officials of the Joe Biden administration delivered messages that a recession can be avoided. Janet Yellen, US Treasury Secretary, appeared on ABC and said, "The economy is expected to transition to a period of stable growth and slow down," adding, "A recession is not inevitable."

Biden's economic advisor Brian Deese, Chairman of the White House National Economic Council (NEC), also appeared on CBS and Fox News, drawing a line on the possibility of a recession. Deese stated, "With an unemployment rate of 3.6%, the labor market is the strongest since World War II, and the balance sheets of households hit by COVID-19 and other factors have recovered over the past year," adding, "Many people seem to underestimate the strength and resilience of the US economy." He argued that the current economic fundamentals of the US are solid.

This content was produced with the assistance of AI translation services.