Economists are divided about the threat of recession.
The Federal Reserve has conducted a historic series of interest rate hikes in order to drive down the worst inflation in four decades. Doing so causes spending to slow, and as the rate hikes have become more aggressive, the chances of the United States taming inflation while skirting a recession have grown more precarious.
The Washington Examiner spoke to five economists to hear their take on the matter. They weighed in just days before the central bank is expected to raise interest rates again, likely by three-fourths of a percentage point — a hike that is essentially akin to three normal rate hikes at once.
Bill Adams, chief economist for Comerica Bank
Adams said that recession risks are elevated. He said that fiscal and monetary policy are both tightening quickly, while the economy faces negative shocks from the war in Ukraine.
He said that being able to rein in food and energy prices is largely going to be determined by the war and developments outside of the control of central bankers. He pointed out, though, that average hourly wage growth has already begun to slow, a sign that there is not a wage-price spiral effect.
“There are a number of economic indicators that are flashing yellow, at least, right now,” Adams told the Washington Examiner about the current state of the economy and the odds of a recession.
Desmond Lachman, senior fellow at the American Enterprise Institute
Lachman explained that some economists consider two negative quarters of economic growth as recessionary.
U.S. GDP declined by 1.6% in the first quarter of this year and appears to be in danger of contracting again during the second quarter. This week, the Atlanta Federal Reserve’s “GDPNow” tracker predicted GDP growth will decrease for a second straight quarter.
“It looks like things are pointing more in the direction that we’ll certainly have a recession by the end of the year,” Lachman said, highlighting abysmal consumer sentiment, the housing market, and a plunging stock market. He also said that the global economy has begun looking a lot worse in recent weeks.
Jeffrey Roach, chief economist for LPL Financial
Roach said his official view is that there is a 50% chance that the economy will fall into a recession. He said there is a major risk the economy gets hit because of the Fed’s monetary policy decisions.
“I don’t think it’s inevitable, because I do think there are some remaining strengths,” Roach said, highlighting existing home sales.
He noted that the vast majority of homes were on the market for less than a month, showing demand strength in the face of rising borrowing costs. Roach sees the economy at an inflection point for both factors that can support the economy and factors that can suppress the economy.
Greg McBride, Bankrate’s chief financial analyst
McBride said that the risk of recession has been rising in recent weeks. Bankrate does a quarterly survey of top economists and in the first quarter of this year, they estimated a 1 in 3 chance of recession. Those odds ticked up to 50-50 for a recession in the next 18 months.
“The odds are definitely on the rise, and continued aggressive action by the Fed I think is going to increase those worries even more,” McBride said.
McBride compared those who are looking at the current economic indicators, such as low unemployment, as proof that there is no coming recession to those looking outside in the middle of summer and saying there is no sign of winter. He pointed out that forecasting is tricky because of lagging economic indicators.
Kurt Rankin, senior economist at PNC
Rankin said that he still thinks there is a possibility for a soft landing, which is when the Fed is able to drive down inflation while avoiding a recession.
“Mainly because there are a lot of cushions in the current state of the economy that are not usually present when the Fed starts a monetary policy tightening cycle,” he said.
Rankin said many businesses are still looking to hire workers, so there is an abundance of job openings. That softens the blow a bit for the Fed, which has been jacking up interest rates to a historic extent.
Bonus: Rep. Kevin Brady (R-TX)
Brady told the Washington Examiner on Friday that he thinks a recession is likely inevitable and that the country may already be engulfed in one. He said that both the White House and the Fed had been in denial about the inflationary effects of last year’s Democratic spending agenda.
“The question is how long and how harsh will that recession be,” the congressman said.
