Economists Increase Chances of Recession to 28%

Economists are forecasting that there is a 28% probability that the country could fall into a recession sometime during the next 12 months, up from 18% in January and 13% last April, The Wall Street Journal reported on Monday (April 11).

The Journal surveyed 65 business, academic and financial forecasters from April 1-5. 

Joe Brusuelas, chief economist at RSM US LLP, told the Journal that the combination of supply issues across the economy and the Federal Reserve raising rates to combat inflation increases the risk of a recession.

Economists also cut their forecast for growth this year and, on average, expect gross domestic product (GDP) adjusted for inflation to go up 2.6% in the fourth quarter of this year. Six months ago, the average forecast was 3.6%. 

See also: SMB Confidence Drops Amid Inflation, Supply Chain Issues

The Fed lifted its benchmark rate a quarter-point in March and is planning six more increases by the end of the year. This is the quickest increase pace in over 15 years, according to the report.

The Fed is anticipated to increase rates by a half-point in early May, 84% of economists indicated in the survey. Over 57% expect there will be two or more similar increases through the end of the year. 

Robert Fry of Robert Fry Economics LLC said that there is a 15% chance of a contraction in the next 12 months — but within 24 months, he raises that to more than 50%. He also said a recession could last three quarters, starting in the last quarter of 2023.

“The problem is really excess demand, resulting from last year’s fiscal and monetary policies,” Fry told the Journal. “The longer the Fed waits to get inflation under control, the deeper the recession will be.”

Read more: CE100™ Index: As Q2 Dawns, Platforms Plunge While Healthcare Shows Faint Pulse

Despite the doom and gloom, 63% of economists surveyed believe that the Fed will be able to bring inflation down without triggering a recession. The economy is in a solid place to handle tightening by the Fed due to low unemployment, increased wages and lower consumer debt, many said. 

“There is still a lot of pent-up demand and momentum in the economy. Higher interest rates may cut growth from about 4-5% to about 2-3% this year, so we’ll see a significant slowdown in growth, but a recession seems unlikely at this time,” said Leo Feler, a senior economist at the Anderson School of Management at the University of California, Los Angeles.