According to a new poll by the Financial Times and the University of Chicago’s Booth School of Business, 70% of the 49 economists polled believe the United States will enter a recession next year.
40% of the respondents believe that the National Bureau of Economic Research, the organization which officially declares the start and endpoint of recessions, will declare one in the first half of 2023, and about a third think it will happen in the later half. One economist thought it might happen in 2022, while a majority felt there would be enough monthly jobs growth to average 200,000 to 300,000 for the rest of the year. The median estimate for unemployment for December is 3.7%.
The National Bureau of Economic Research defines a recession as a “significant decline in economic activity that is spread across the economy and lasts more than a few months.”
The survey respondents apparently did not place much stock in Fed assertions that it can tamp down inflation without inflicting substantial economic pain. It is the Fed’s position that as it raises rates, employers will gradually reduce job openings instead of laying off staff, and that will cool wage growth without leaving large numbers of people unable to support themselves. However Fed Chair Jay Powell has admitted it is possible the Fed’s actions may cause some pain that will increase unemployment, “a few ticks.”
Other economists are not so sure.
Tara Sinclair, an economist at George Washington University said, “This is not landing a plane on a regular landing strip. This is landing a plane on a tightrope, and the winds are blowing. The idea that we are going to bring incomes down just enough and spending down just enough to bring prices back to the Fed’s 2 per cent target is unrealistic.”
Since the February survey, economists surveyed have shifted toward a view that core inflation, according to the personal consumption expenditures price index, will pass above 3% by the end of 2023. In April only 4% though that would be “very likely,” while in June it had risen to 12%. Likewise, the percentage that though it unlikely has halved. By year’s end, they believe core inflation will be 4.3%.
40% felt the Fed would fail to control inflation if it only raised the benchmark rate to 2.8% by the end of the year. That would have translated into half-point rises at each of the next three meetings in June, July, and September, before delivering quarter point hikes for the last two meetings of 2022.
Dean Croushore, a former economist at the Fed’s Philadelphia branch for 14 years. said the Fed may ultimately need to raise rates to 5%. He went on, “It’s always tough to bring inflation down once you let it out of the bottle. If they would just accelerate the rate increases a little bit more, it might cause a little financial volatility in the short-run, but they might be better off by not having to do as much later.”
