Because the risk of recession will increase. Wsj report
What economists interviewed by the Wall Street Journal see and predict
Economists see a growing risk of recession as the strong and unstoppable US economy drives up inflation, likely prompting a heavy response from the Federal Reserve. In particular, experts interviewed by the Wall Street Journal this month put the probability of the economy in recession in the next 12 months on average at 28%, up from 18% in January and just 13% a year ago.
"The risk of a recession is increasing due to the series of supply shocks hitting the economy as the Fed raises rates to tackle inflation," said Joe Brusuelas, chief economist at RSM US LLP.
Economists have cut back on their growth forecasts this year. On average, they see inflation-adjusted gross domestic product rise 2.6% in the fourth quarter of 2022 compared to a year earlier, down a full percentage point from the average forecast six months ago, albeit still above the rate. average annual growth of 2.2% in the decade before the pandemic.
The looming risk of a downturn coupled with alarming inflation, which hit 7.9% in February, represents the Fed's balancing act: it is trying to cool the economy enough to bring inflation down, but not. so much that it causes a drop in spending and an increase in unemployment.
The latest probability of recession is slightly below the peak of the last 34.8% expansion in September 2019. At the time, growth had slowed in response to Fed rate hikes the previous year and a trade war between states United and China. Months earlier, it had kicked off its first rate-cutting cycle since 2008.
If a recession would have followed then, without the pandemic, there is no telling. Economists' likelihood of recession reached the same level in August 2007, after which a recession followed. But when it hit a similar level in August 2011, the economy continued to grow.
Last month, the central bank raised its benchmark rate by a quarter of a point and forecast another six hikes by the end of the year, the most aggressive pace in more than 15 years. About 84% of economists surveyed said they expect the Fed to hike rates by half a point in early May. More than 57% see two or more such increases until the end of 2022.
The poll economists' average predicts that the Fed will bring the federal funds rate to 2.125% by the end of 2022, and then to 2.875% by December 2023 – close to the Fed's own projections.
But they also expect inflation to remain stubbornly high – forecasting, on average, a 7.5% rate in June 2022, falling to a still uncomfortable 5.5% by December. Respondents estimate it will drop back to 2.9% at the end of 2023, a short distance from the Fed's 2% target.
High inflation remains the main economic risk; it erodes spending power and consumer confidence and calls on the Fed to tighten. Economists differ on the major source of inflationary risk. A third cited commodity, food and gas prices, while 15% cited Russia's war with Ukraine.
In this field, Amy Crews Cutts, of AC Cutts & Associates LLC, expects higher and persistent inflation than her peers, especially since its main drivers are commodity prices, exacerbated by the war in Ukraine. But even if monetary policy has little impact on those prices, he said, the painful level of headline inflation pushes the Fed to act.
“To show that he is not fighting it is politically unsustainable. But the only policy response the Fed has is to tighten, ”said Ms. Cutts, who puts the possibility of a recession in the next 12 months at 70 percent. "The Fed's actions to curb inflation will lead to a recession sooner rather than later."
27% of respondents cited wage growth or a tight labor market as the greatest inflationary threat.
"The Ukrainian crisis will cause another push to inflation in the short term, but the wage-price spiral that has already begun is a more permanent threat to price stability," said Philip Marey, senior US strategist at Rabobank. In that spiral, workers get higher wages to keep up with rising prices, and then these higher wages push companies to raise prices further. Marey said that as this process is already underway, the Fed will need to raise rates enough to induce a recession to break the inflation momentum.
Robert Fry, of Robert Fry Economics LLC, puts the possibility of a contraction in the next 12 months at a mere 15%, but raises it to well over 50% within the next 24 months, and currently expects a three-quarter recession starts in the last quarter of 2023.
"The problem is really the excess demand, resulting from last year's fiscal and monetary policies," he said. "The longer the Fed waits to bring inflation under control, the deeper the recession will be."
(Extract from the foreign press review by eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-aumenta-il-rischio-recessione-report-wsj/ on Mon, 18 Apr 2022 06:04:52 +0000.