The US economy It may be headed into a recession next year, as persistently high inflation and the Federal Reserve’s tightening grip weigh on growth.
Greg Dako, chief economist at EY-Parthenon, warned in a new analyst note that the odds of an economic downturn in the United States over the next year are between 35% and 40%.
There is a greater risk of a global downturn.
“A recession in the United States is unlikely in the very near term, but there are many uncertainties looming,” Dako wrote. “While I put the odds of a US recession somewhere between 35-40% in the next 12 months, the odds of a slowdown in physical global growth are close to 100% in the next six months.”
While the US economy remains strong in the meantime, he wrote, “cracks in the foundation are starting to appear.” Inflated sky high, interest rates and financial market downturn Consumer spending is likely to weigh on in the coming months. Consumer spending accounts for about two-thirds of GDP, and is the broadest measure of goods and services produced in the country.
“With the Federal Reserve tightening the tap on monetary policy with increasing determination and the global economic outlook becoming more bleak, the US economy will grow more vulnerable to a downturn in the coming months,” Dako wrote.
Economic growth in the US is already slowing. Bureau of Labor Statistics I reported earlier this month that GDP unexpectedly contracted in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still in the midst of a coronavirus-induced recession.
This analysis comes amid growing concerns on Wall Street that feed it The economy may be dragged into recession as it seeks to tame inflation, which rose 8.3% in April, near a 40-year high. Bank of America, as well as Fannie Mae and Deutsche Bank, are among the Wall Street firms anticipating a downturn in the next two years, along with former Federal Reserve Chairman Ben Bernanke.
RSM Chief Economist Joe Brusolas, who questioned whether the central bank would be able to make a smooth landing, said.
Policy makers raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades and indicated that more similar-sized increases are on the table at upcoming meetings as they race to catch up with inflation.
Federal Reserve Chairman Jerome Powell He acknowledged that there might be some “pain associated with” lowering inflation and curbing demand, but he opposed the idea of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. However, he cautioned, a soft landing is not guaranteed.
“It’s going to be a tough job, and it’s gotten even more difficult in the past couple of months because of global events,” Powell said Wednesday during a live event in the Wall Street Journal, referring to the Ukraine war and the COVID lockdown in China.
But he added, “There are a number of reasonable paths to getting a soft landing or a soft landing. Our job is not to block the odds, but rather to try to make it happen.”
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