While an official recession has not yet been declared, there are warnings that a recession may be in our future. Business decisions will be made based on current economic activity regardless of whether a recession is ever official.
Based on the technical definition, a recession is “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP for two successive quarters,” as defined by the Oxford Dictionary.
According to the technical definition, some would argue the American people are already experiencing a recession, but let’s look at what the experts think. It is important to remember that market conditions and economic cycles turn quickly.
Based on the economists polled by the National Association of Business Economics, 72% of economists expect a full-blown recession by next summer.
Conversely, 13% of economists polled are confident or very confident that the Federal Reserve can get inflation back down to its 2% goal without causing a recession in the next two years. 76% of panelists said they supported the $300 billion deficit goals of the legislation, which was signed into law by Joe Biden several weeks ago.
16% of economists were in favor of the 15% minimum corporate tax.
68% of economists were in favor of healthcare subsidies and drug pricing reform.
63% in favor of climate change subsidies, rebates, and investments.
In addition, a study conducted by the National Bureau of Economic Research (NBER) found that 1 in 5 (or roughly 19%) of forecasters say the economy is already in a recession. Conversely, however, the same study found that 20% of forecasters do not expect a recession to begin in the second half of the next year.
Moreover, a survey conducted by Missouri-based investment bank, Stifel Financial Group, found that 79% of business owners, investors, and executives expect a downturn in the economy in the coming 18 months. Among those polled, 18% believe we are already in a recession, while only 3% believe we can avoid a recession in the next 18 months.
The survey also found that 53% of executives expect the inflation risk to remain a challenge to their assets for the next two quarters to a year.
Furthermore, the survey reveals that businesses believe labor constraints, inflation, supply chain disruption, and a recession are the biggest threats to profitability.
High inflation rates can trigger a recession. Inflation has reached its highest peak in forty years, hitting middle-class and low-income families the hardest. Inflation has been slow to go down, as well. Inflation also directly affects the stock market. On September 13th, 2022, Dow fell 1,100 points for its worst day since May. Stocks logged the worst day since 2020 when stocks fell because of the shutdowns amid the COVID-19 pandemic. While the inflation debate rages on, Wall Street’s rout only worsens.
Stifel’s financial survey found that 53% of executives believe that inflation will be a constraint for the next two quarters to one year. However, 43% of executives polled see it as a multi-year stumbling block. Only 4% predict inflation will be short-term, only one to two quarters. Interestingly, when polled, 0% of executives think inflation is not a challenge.
However, the Biden Administration does not think a recession is a looming threat. Joe Biden stated Federal Reserve Chair Powell also does not think a recession is a threat.
Biden cites metrics like record job growth and steady consumer spending as reasons why he believes the U.S. is not yet in a recession, however, these statements have received criticism across party lines.
Though he may not think a recession is coming, Fed. Chair Powell does say lowering inflation will not be painless. He warns of a potential rise in unemployment rates, less business, and a slower housing market.
Buying a home is already the most expensive it has been in 33 years. The average mortgage payment skyrocketed from 1,297 in January 2022 to 1,944 by mid-year. This is a whopping 33% increase in just 6 months. As families are priced out of home buying, rent is being driven up.
The Federal Reserve Board will meet on September 20th and 21st to discuss economic projections and monetary conditions. This means the American people could see yet another Fed rate hike. According to their official press release,
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2-1/2 percent, and anticipates that ongoing increases in the target range will be appropriate.”
They also say they will adjust their monetary policies to achieve their goals if need be.
