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Thursday, September 29, 2022
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Recession May Loom Ahead


Recession ahead sign | Image by gguy

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Some economists are revising their economic forecasts, claiming there is a greater likelihood that the United States may slip into a recession.

Yardeni Research recently upped the chances of a recession to 40%, while EY-Parthenon put the odds at 35-40%.

“If a recession is about to happen, it will be the most widely anticipated downturn in history,” said Ed Yardeni, chief investment strategist for Yardeni Research.

Economists may be gleaning insight from the Federal Reserve’s open commitment to aggressive interest rate hikes to tame inflation, according to Investor’s Business Daily.

The central bank has already increased its benchmark interest rate a half-point and seems poised to do so again. It is also about to drop $95 billion per month in pandemic asset purchases. However, Fed chair Jerome Powell says more needs to be done.

“There could be some pain involved in restoring price stability,” said Fed Chair Jerome Powell. He warned unemployment may also “move up a few ticks.”

The lower the unemployment rate drops, the more likely the Federal Reserve will raise rates to defuse a monetary glut and control inflation. Recessions usually happen when the central bank unintentionally causes a sharp reduction in credit by tightening too much in times of high speculation and debt.

Chief economist at EY-Parthenon, Greg Daco, said that the chances of a U.S. economic slump in 2023 are between 35% and 40%. But it could come sooner than that, depending on what the Fed chooses to do.

“With the Fed tightening the monetary policy spigot with increased determination and the global economic outlook turning bleaker, the U.S. economy will grow more susceptible to a downturn in the coming months,” Daco added.

Experts like Jason Furman, a Harvard economist, pointed out that a recession is not yet a foregone conclusion. Still, if the economy goes into recession, most economists agree it will likely not be as bad as in 2008.

Stephen Miran, the co-founder of Amberwave Partners and a former U.S. Department of the Treasury senior adviser, opined the U.S. economy would probably go into a “garden variety recession” rather than one like the financial meltdown of 2008.

“It’s the cascading defaults that come out of too much debt that we don’t have right now,” he said.

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