US economy headed for recession by mid-2023: Survey

New York: The overwhelming majority of economists expects the economy to tumble into a recession next year as a result of the Federal Reserve’s war on inflation, according to a new survey.

Findings from the National Association of Business Economics (NABE) shows that 72% of economists expect an economic downturn by the middle of next year — or think the economy is already in one.

About 20% of respondents said they believe the economy is already in a recession. Another 20% do not expect a downturn to start before the second half of next year.

“Survey results reflect many split opinions among the panelists,” NABE President David Altig said in a statement. “This by itself suggests there is less clarity than usual about the outlook.”

There is a growing consensus on Wall Street that the Federal Reserve will trigger a recession as it battles inflation with a series of aggressive interest rate hikes. Policymakers approved the second consecutive 75-basis-point rate hike in July and have indicated that another supersized rate hike is on the table in September, depending on forthcoming economic data.

Gross domestic product (GDP), the broadest measure of goods and services produced in the country, already fell for two straight quarters, with the economy shrinking by 1.6% from January to March and falling by another 0.9% in the period from April to June.

The decline in economic growth in the second quarter meets the technical, but unofficial, criteria for a recession, which requires a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Still, the NBER — the semi-official arbiter — may not confirm it immediately as it typically waits up to a year to call it. 

At the same time, unemployment fell to a near-historic low of 3.5% in July, and consumers are still spending heavily, despite scorching-hot inflation.

Hiking interest rates tends to create higher consumer and business loan rates, which slows the economy by forcing employers to cut back on spending. Mortgage rates have nearly doubled from one year ago, while some credit card issuers have ratcheted up their rates to 20%.

Fed Chairman Jerome Powell has said that tackling inflation remains the central bank’s No. 1 priority, even if it means risking a downturn — though he stressed last month that he does not believe the U.S. is currently in a recession.

Image courtesy of thesatimes

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