Data from the latest gross domestic product numbers show that, more or less, we are not looking at whether or not there will be a recession but instead preparing for exactly when and how long the likely downturn will be. Bloomberg quoted Lindsey Piegza, the chief economist for Stifel Nicolaus & Co., who stated, “A faltering economy is all but inevitable. The question has moved beyond if we are going to see a recession to what’s the depth and duration of a downturn.”
According to Bloomberg, economists predict the recession to hit by the end of next year, but consumers are saying they are feeling the bite of recession now. As many as one-third of Americans believe the U.S. is already in a recession.
While the likelihood grows daily, the outlook for a recession is up for debate. According to economists such as Robert Dent, senior U.S. economist for Nomura Securities, the likely downturn is not expected to be severe. He stated, “The good news is there’s a limit to how severe it’s going to be.” However, Dent continued and noted the crux of the issue is the longevity of the recession, stating, “The bad news is it’s going to be prolonged.”
The average length of a recession is thought to be ten to eleven months. The length and severity of the coming downturn have to determine factors that have yet to be sorted. Inflation is the primary determining factor. Typically the Federal Reserve will help during economic downturns by lowering the interest rates. However, that would be impossible in this case, as the Fed is raising interest rates to stifle rising inflation rates.
Federal Reserve Chair Powell, along with other U.S. economists, understands the current U.S. economy to be in better shape than it was during previous recessions and has stated that overall, the economy is in a better position to handle a recession should one hit.
Anna Wong, the chief U.S. economist, commented on the outlook of the Fed’s current plan to continue to increase interest rates stating, “The Fed is not going to pause until they see that inflation has convincingly come down. That means that this Fed will be hiking well into economic weakness, likely prolonging the duration of the recession.”
Deutsche Bank’s Christian Sewing, AG chief executive, noted a 50% chance of a global recession, the same percentage predicted by Citigroup Inc. However, Powell remains steadfast in the optimistic idea that a U.S. recession is possible but not necessarily inevitable.
While the data and numbers do not necessarily point to a current recession, Ludovic Subran, chief economist at Allianz S.E., said it best, “People are getting poorer. So this is not a recession, but it really feels and tastes like a recession.”
