An increasing number of people and groups are warning that a recession is on the horizon as the Federal Reserve drives up interest rates to cool the country’s smoldering inflation.
Many economists thought inflation had peaked when it declined to an 8.3% annual rate in April. But then, Friday’s consumer price index report showed inflation rising again to 8.6%, the highest since 1981, leading investors to think the Fed might take extraordinary steps to lower price pressures.
Those steps are expected to include a two-thirds of a percentage point rate hike Wednesday, an aggressive course of action that hasn’t been taken since 1994. As the Fed works to cool inflation, it will also slow spending, leading to a growing number of recession forecasts.
Still, a recession is by no means a certainty, and many economists are pointing to the country’s strong labor market and unemployment numbers in betting that the Fed, led by Chairman Jerome Powell, can pull off a so-called soft landing, which means driving down inflation while sidestepping a recession.
Here are a few prominent instances of recession warnings:
Brian Armstrong
Coinbase CEO Brian Armstrong announced Tuesday that his company would be laying off nearly 20% of its employees. He cited the likelihood of a recession as part of the reasoning behind the decision.
“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” Armstrong said in an email to staff, which he later published in a blog post.
Bitcoin and other cryptocurrencies have been in the gutter since the start of the year. The digital currencies have fallen alongside traditional stocks, albeit at quicker paces, as investors fret about the state of the economy and start to flee from such risky assets in anticipation of a prolonged economic downturn.
World Bank
The World Bank said last week that many countries across the world are going to struggle to prevent a recession this year and pared down its global growth forecast.
Global growth is now expected to fall to 2.9%, a decrease of 1.2 percentage points from the previous forecast at the start of the year, the World Bank announced. The international financial institution said alarm bells are flashing red for a “protracted period of feeble growth and elevated inflation.”
“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,” said World Bank President David Malpass.
Larry Summers
Former Treasury Secretary Larry Summers is also warning of a recession. Summers, a Democrat who led the Treasury Department under President Bill Clinton and served as director of the National Economic Council under President Barack Obama, said over the weekend that a recession will “more likely than not” end up happening.
“I think when inflation is as high as it is right now, and unemployment is as low as it is right now, it’s almost always been followed within two years by recession,” Summers said. “I think they’re wrong now if anyone’s highly confident that we’re going to avoid recession.”
The economist was one of the first to warn about the risk that inflation posed even months before it started accelerating at it is now. In March, he said there might also be a risk of 1970s-style stagflation, which is when prices are rising while the economy and labor market are contracting.
Elon Musk
Tesla CEO Elon Musk has also predicted that a recession is on the horizon. In response to a question on Twitter last month, the billionaire (and aspiring Twitter owner) said he thinks one will occur but that it will ultimately be a net positive.
“Yes, but this is actually a good thing. It has been raining money on fools for too long. Some bankruptcies need to happen,” Musk said in response to the question. “Also, all the COVID stay-at-home stuff has tricked people into thinking that you don’t actually need to work hard. Rude awakening inbound!”
Musk predicted a recession of about 12-18 months.
Earlier this month, it was reported that in an email to Tesla executives, Musk said he has a “super bad feeling” about the economy and wants to slash about 10% of the company’s workforce.
Lloyd Blankfein
Former Goldman Sachs CEO Lloyd Blankfein is also sounding the alarm bells. Blankfein, who is one of the world’s most well-known bankers, said during an interview last month that he thinks there is a “very, very high risk” that the economy will tumble into a recession.
“If I were running a big company, I would be very prepared for it. If I was a consumer, I’d be prepared for it. But it’s not baked in the cake,” he said.
Jamie Dimon
JPMorgan Chase CEO Jamie Dimon, a billionaire who is regarded as one of the leading voices in the world of finance, said the Fed’s plan to continue jacking up interest rates, combined with uncertainty surrounding the war in Ukraine, is causing his firm to prepare for an economic “hurricane.”
“That hurricane is right out there, down the road, coming our way. We just don’t know if it is a minor one or Superstorm Sandy or [Hurricane] Andrew or something like that. And you better brace yourself,” Dimon cautioned.
Dimon said that while some investors might think it’s “sunny” right now and the central bank can handle quantitative tightening while averting a recession, the hurricane is still coming.
Academic economists
A new survey conducted by the Financial Times in partnership with the University of Chicago Booth School of Business released Monday found that 68% of the 49 economists queried said the most likely timing of a recession is sometime in 2023.
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.
A recession is defined by the NBER, a private academic group, as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Some see it as two consecutive quarters of negative gross domestic product growth.
Cardi B
The growing risk of a recession has even seeped into pop culture as people increasingly cite rising inflation and economic woes as the most concerning issues facing the country. Rapper Cardi B, who has made headlines for her dalliances with politics and economics in the past, recently wondered about the timing of a recession.
“When y’all think they going to announce that we going into a recession?” the “Bodak Yellow” rapper asked on Twitter.
Treasury Secretary Janet Yellen was later asked to respond to Cardi B’s question, though Yellen pushed back on the notion and said she doesn’t see a recession coming.
“Consumer spending is very strong. Investment spending is solid. I expect growth to slow down,” Yellen said.
And there are some economists and officials within the Biden administration that have said a full-blown recession is unlikely. Those individuals point to the strong labor market as having the resiliency to weather the adverse economic effects that the Fed’s tightening cycle will bring.
The economy beat expectations and added 390,000 jobs last month. Additionally, the country’s unemployment rate remained at 3.6%, an ultralow level that is just about where it was right before the pandemic began to wreak havoc on the economy more than two years ago.
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After the job numbers were released, President Joe Biden touted the strength of the labor market against the backdrop of rising prices. He hinted that the better-than-anticipated jobs numbers offer more support for the Fed in bringing down inflation.
“I know that even with today’s good news, a lot of Americans remain anxious, and I understand the feeling,” Biden said. “Because of the enormous progress we’ve made on the economy, the Americans can tackle inflation from a position of strength.”
