According to a recent survey by the National Association of Business Economics (NABE), 72% of economists expect a recession by the middle of next year — with 19% saying it may have already begun, CNN reported.
What could trigger the recession?
A recession emerges from a confluence of factors that ultimately come to a head. For example, the Great Recession of 2008 emerged from a housing market collapse that was fueled by insufficient regulations, low-interest rates, and subprime mortgages.
Today, the economy is in a fragile state with ongoing supply chain constraints that have in part fueled skyrocketing inflation, which has subsequently hiked up the cost of living, affecting other economic forces such as housing and the job market.
When inflation hit record highs in June, the Fed raised interest rates by half a percentage point, then again in July to 0.75 points in an attempt to tame inflation. However, interest rate hikes by the Fed often affect the larger economy, as higher rates tend to negatively affect stock prices and earnings, which can trigger an economic downturn.
“The Fed slows the economy down by raising interest rates, which cuts spending,” Princeton economist Alan Blinder told NPR. “If you do too much of that, you’re going to get a recession.”
What do economists think?
The survey featured responses from 198 members of NABE, revealing a disparity of opinions with “less clarity than usual about the outlook,” NABE President David Altig said in a statement on Monday.
Economists were asked how confident they were about the Fed’s ability to tame inflation to its 2% goal in the next two years, without triggering an economic downturn. Only 27% of the respondents said they were “confident,” “somewhat confident” or “very confident” that inflation could be controlled without igniting a recession. The other 73% marked that they were “not very confident” or “not at all confident.”
This signals that the state of the economy remains uncertain, with Fed chairman Jerome Powell himself stating at the last policy meeting on July 27 that it is difficult to predict “with any confidence in normal times … what the economy’s going to be doing in six or 12 months. These are not normal times.”
Why it’s hard to know for sure if we’re in a recession
These conditions continue to push economists on either end of the spectrum, making looming recession chatter an ongoing question of “are we or aren’t we?” Despite the Fed’s rate hikes being a usual precursor to a downturn, some experts remain optimistic about the ongoing resilience of consumers in the wake of record-high inflation and market shifts.
“While consumers are feeling the burden of still-elevated prices, they remain resilient,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics in New York per Reuters. “The combination of the strong labor market and sturdy consumer spending looks to keep the economy out of recession territory.”