On Sunday, the Wall Street Journal reported that its latest quarterly survey of economic experts indicated that the US economy will tip into a recession in the coming year, driven by higher interest rates imposed to try and rein in skyrocketing inflation.
The report noted that the business and academic economists surveyed said that on average, the chances of a recession in the next twelve months was roughly 61%. The forecast is down slightly from the 63% which said the same thing in October’s survey.
The Wall Street Journal noted that the Federal Reserve’s hope when it began its policy of monetary tightening had been to bring down the rampant inflation, with only a slight slowing of economic growth in the nation, rather than triggering an outright contraction of growth. The Federal Reserve referred to the optimistic scenario as a “soft landing.” However in the Journal’s survey, three quarters predicted that the Fed would fail to achieve a soft landing this year.
The ominous survey was released amid a more optimistic tone being struck on inflation of late. The report noted that inflation has fallen from the 9.1% reading of the year over year measure of the consumer price index last June, to 6.5% in December. It is widely expected to fall to 3.1% by the end of 2023, and continue to drop to 2.4% by the end of 2024.
In the survey Deutsche Bank economists were quoted as saying, “While recent inflation prints have shown some progress, a few persistent categories like core services are associated with the historically tight labor market, suggesting that there is still ‘a long way to go’ for the Fed. The Fed would stay on its tightening trajectory to restore the rebalance of labor market and price stability, which in our view would engineer a sharp rise in unemployment and recession.”
Greg Daco. the chief economist at EY-Parthenon said, “[w]hile services activity remains robust, the housing sector is tumbling under the weight of elevated mortgage rates and manufacturing activity is stalling–both signaling a broader economic downturn is likely coming.” He predicts that in the first half of 2023 tighter financial conditions, persistent inflation, and weaker global growth will force the US economy into a moderate recession.
The economists generally indicated that a recession in the US is unavoidable, however they do not expect it to be harsh, or to last for long.
The report noted the economists also expect gross domestic product to rise at a rate of 0.1% annually for the first quarter of 2023, followed by a contraction at a rate of 0.4% in the second quarter. The third quarter was predicted to show no growth, followed by a 0.6% rate of growth in the fourth quarter.
