Experts weigh-in and we’ve curated their input
Recession fears are looming as the Fed continues along its path to raise interest rates in an effort to dampen inflation. But while prices have been increasing, does that mean a recession is imminent? Experts will tell you these things are historically tricky to predict. Powerhouse firms Goldman Sachs, Deutsche Bank and Bank of America forecast a pending downturn in the next two years, but just how hard will the economy be hit, if at all, or are we destined for a crippling recession or worse: stagflation?
So, what are experts saying?
Not right now
Gus Faucher, a chief economist at PNC Financial Services, told CNBC:
“The likelihood of recession this year is pretty low,” Faucher said, but “it gets dicier in 2023 and 2024…Rising interest rates are designed to cool off growth, hopefully without pushing the economy into recession,” he said, adding that if the central bank “raises their rates too much, that can push the economy into recession…That’s why I’m more concerned about 2023, or 2024, because we’ll have felt the cumulative impact of all of those interest rate increases that we’re going to be seeing over the next year and a half.”
Recession odds are increasing
A monthly Bloomberg survey revealed that economists are pegging the probability of a recession at 30% – the highest since 2020 and double the prediction made just three months ago.
It’s a matter of time
Former SEC Chief Economist Larry Harris told CNBC it’s a question of when, not if.
“Are we going to have a recession? It’s pretty likely,” Harris said. “It’s very hard to stop inflation without a recession…Rising interest rates choke off spending by increasing the cost of financing…There have been huge things happening in the economy and enormous government spending. When balances get large, adjustments have to be large. There will be a day of reckoning, the question is how soon.”
But, it may not be catastrophic
Recessions are “an unavoidable fact of economic life,” said Stephen Miran, cofounder of Amberwave Partners and a former senior adviser at the U.S. Department of the Treasury, in a recent Fortune article.
“We were fortunate in the previous cycles to have gone a pretty long time without a recession. But actually, you know, recessions happening has been the norm throughout most of economic history.”
Miran predicts this next downturn will be what he calls a “garden-variety recession,” rather than a catastrophic financial crisis like we saw in 2008. The garden variety happens when the economy overheats, causing inflation to spike, which in turn leads to an increase in interest rates. This is much preferable to the more serious kind, which he calls a “balance-sheet recession.”
Recovery from the old garden variety isn’t as terrible either, Miran says:
“It typically takes about 10 months from the low in unemployment to recover to pre-recession employment levels in a typical recession.”
Still, the World Bank just issued a warning
In its recent Global Economic Prospects report, the World Bank said the risk of stagflation is rising, noting this could have potentially harmful consequences for middle- and low-income economies. World Bank President David Malpass said in a statement:
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid. Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality.”
So, how will the U.S. housing market be impacted?
Moody’s Analytics Chief Economist Mark Zandi predicts the odds of a recession in the next 24 months are about 50% thanks to a confluence of factors, including supply chain issues, rising gas and commodity prices, and the Ukraine conflict. The housing market will be the first to fall, he says.
“Recession risks are high – uncomfortably high – and rising,” Zandi told the Washington Post. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck…We’re traveling very close to the edge. The housing market is the next thing that’s going to roll over; the question is just how hard.”