A large proportion of top economists predict the economy will fall into a recession sometime next year, a new survey revealed.
The survey, conducted by the Financial Times in partnership with the University of Chicago’s Booth School of Business, found that 68% of the 49 economists surveyed said the most likely timing of a recession is sometime in 2023.
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Almost 40% said the National Bureau of Economic Research will declare a recession in the first half of next year, while 30% projected one will be declared in the second half. Just a mere 2% of those surveyed expect a recession to hit this year, and 30% said 2024 or later is the most likely time for one to occur.
The Federal Reserve is trying to drive down inflation, given that consumer prices have increased at the fastest pace since the early 1980s. It has conducted two rate hikes so far for a combined 75 basis point increase and is set to raise rates by another half-percentage point on Wednesday, raising the target to 1.25% after months of resting at near-zero levels.
By raising rates, the Fed aims to slow spending, which could cause economic growth to stagnate. The Fed is targeting 2% inflation as gauged by the personal consumption expenditures price index. Core PCE inflation is now hovering at about 5%.
Dean Croushore, a professor at the University of Richmond, predicted that the Fed might have to raise its interest rate target to 5% because of its long wait in beginning the tightening process.
“It’s always tough to bring inflation down once you let it out of the bottle,” Croushore said. “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.”
The survey comes after a hotter-than-expected May consumer price index report. Consumer prices broke another record for this year and rose to 8.6% in the 12 months ending in May, the highest rate of increase since the early 1980s.
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Stocks have continued to crater as fears of a recession grow. The S&P 500 entered a bear market on Monday and was down 21.3% from its most recent high at the beginning of the year. A bear market is when an index drops below 20% from a recent high. While not an indicator of a recession, bear markets often precede recessions.
The tech-heavy Nasdaq index is now down more than 31% from the start of the year, while the Dow Jones Industrial Average was down about 2.5% on Monday and 16.3% since the start of the year.
