New survey shows recession expectations following Fed actions

Basmalla Attia and Tahreem Ashraf

Economists predict an upcoming recession as the Federal Reserve becomes more hawkish in dealing with the war on inflation.

The National Association of Business Economics conducted a survey, in which 198 members were polled in a period from Aug. 1 to Aug. 9, on the likelihood of a recession. The survey found that 72% of these economists are predicting a recession.

Another 19% of respondents believe the economy is already in a recession.

About a fifth of the economists surveyed do not expect a recession to begin before the second half of 2023.

A striking number was the 73% of the economists either not confident at all or not very confident in the Fed getting inflation to 2%, the ideal inflation percentage.

Conversely, only 13% said they are confident or very confident, indicating a shared sentiment among economists of distrust in the Fed taming inflation to the desired rate.

Additionally, 76% of economists said they support the $300 billion deficit reduction goal of the Inflation Reduction Act, which U.S. President Joe Biden signed into law on Aug. 16. Overall, most respondents to the NABE survey supported the administration’s latest landmark bill.

The result came out days before Fed Chair Jerome Powell’s meeting in Jackson Hole, Wyoming, in which he seemed convinced that a recession was inevitable. This was displayed in his direct and clear determination that curbing inflation is his number one goal, even if it comes at the risk of other factors.

The National Bureau of Economic Research defines a recession as a significant and prolonged downturn in economic activity, in which there are two consecutive quarters of decline in the gross domestic product. This results in shrinking economic output, increased consumer demand and unemployment.

The GDP has fallen for two consecutive quarters, but the criteria of having economic activity decline significantly and lastfor more than a few months hasn’t been met until now.

The recession is predicted to occur by mid-2023, and there’s a growing consensus on Wall Street that it will happen, especially after the second consecutive 75 basis point rate hike in July.

This created higher consumer and business loan rates. To discourage high consumer spending, credit card rates increased to 20%.

But there are conflicting signs regarding economic health. Some even argue that recessions are bound to happen in order to save us from a bigger evil: stubborn inflation.

“A recession is a necessary evil and the only way to get to where we want to be — where people don’t lose all their money to higher prices,” Philip Marey, senior U.S. strategist at Rabobank, told Business Today.

A poll conducted by Reuters found that an upcoming strong hike of 50 basis points is likely in September, consequently taking interest rates to 2.75%-3.00%.

The expectations of a slower pace in hikes boosted equity and bond markets over the past week, adding more pressure on the Fed.