[Comprehensive] Heated Recession Debate... US Economist "44% Chance of Recession Within 1 Year"

[Asia Economy New York=Special Correspondent Joselgina] After the Federal Reserve's (Fed) giant step (0.75 percentage point interest rate hike), the recession debate on Wall Street is heating up further. Economists predict that the likelihood of a recession hitting the United States within the next year is close to half. This level is higher than just before the global financial crisis. As recession concerns spread ahead of the midterm elections in November, senior U.S. administration officials have collectively sought to draw a line.

◇Rising Inflation Increases Recession Concerns

The Wall Street Journal (WSJ) reported on the 19th (local time) that the average response to the question ‘Probability of a recession within the next 12 months’ from a survey of 53 economists was 44%.

This figure is one that can be seen either during or just before a recession. It has sharply risen from 18% in January and 28% in April this year. WSJ noted that since the survey began in mid-2005, such a high figure has rarely been seen except during recession periods. It was 38% in December 2007, just before the global financial crisis, and 26% in February 2020, just before the COVID-19 outbreak.

These concerns are analyzed to be due to a combination of domestic and international adverse factors such as inflation at the highest level in 41 years, interest rate hikes, and global supply chain disruptions. The survey was conducted on June 16-17, right after the Fed decided on the giant step. Michael Moran, chief economist at Daiwa Capital Markets America, predicted, "The Fed has slammed on the brakes hard. In this situation, it is difficult to avoid a recession."

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

The forecast for the U.S. annual Gross Domestic Product (GDP) growth rate this year is only 1.28%, halving from 2.57% in April. Greg Daco, chief economist at consulting firm EY-Parthenon, said, "The U.S. economy is heading toward a mild recession within a few months," adding, "Rising interest rates and plummeting stock prices will erode purchasing power and severely dampen housing (transaction) activity." Signs of consumer slowdown have also been confirmed recently, such as the consumer sentiment index (50.2) announced earlier this month by the University of Michigan, which fell to the lowest level in 42 years.

◇U.S. Yellen: "High Inflation Throughout This Year... Recession Can Be Avoided"

Janet Yellen, U.S. Secretary of the Treasury
Photo by AP Yonhap News

As the recession debate intensifies, administration officials are sending a unified message that a recession can be avoided. They argue that the U.S. economic fundamentals are solid.

U.S. Treasury Secretary Janet Yellen appeared on ABC News that day and said, "Inflation will persist for the remainder of this year," but predicted, "The economy will transition to a stable growth phase and slow down." She described U.S. inflation as "unacceptably high," but emphasized, "The labor market is the strongest since World War II. Inflation will soon slow down," and stressed, "A recession is not inevitable."

Biden’s economic advisor Brian Deese, chairman of the White House National Economic Council (NEC), also appeared consecutively on CBS and Fox News, drawing a line on the possibility of a recession. Deese said, "With an unemployment rate of 3.6%, the labor market is the best since World War II, and the balance sheets of households hit by COVID and other factors have recovered over the past year," adding, "Many seem to underestimate the strength and resilience of the U.S. economy."

These remarks are interpreted as distancing from the ‘economic responsibility’ directed at the administration ahead of the midterm elections, while also aiming to prevent worsening economic sentiment among economic agents due to recession mentions. Earlier, President Biden’s interview with the Associated Press, where he said, "A recession is not inevitable. We are in a stronger position than any other country in the world to overcome inflation," shares the same context.

On the same day, Loretta Mester, president of the Federal Reserve Bank of Cleveland, assessed the recession concerns by saying, "There is a slowdown in growth, but it is okay." However, she predicted that it would take about a couple of years for U.S. inflation to fall to the Fed’s target of 2%. It is expected that high inflation will be unavoidable for the time being.

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