There’s no point in ignoring it: economists have been predicting a recession for a long time now, and with the War in Ukraine and COVID-19 lockdowns in China, the risk could turn into a reality. The next recession forecast seems dire, but not all economists agree. In early April, Forbes shared information from a Reuters poll which showed that one out of four economists felt that the U.S. would tumble into a recession; but some have more concerns than others.
Economist Predictions for the Next Recession
According to CNN Business, Deutsche Bank was the first central bank that forecasted a recession, and while the economist prediction for the next recession is often that it will be mild, others say it will be major. Morgan Stanley posted that U.S. real gross domestic product growth (GDP) could fall to about three percent in 2022, and the Conference Board claims that GDP slowed to 1.7 percent in the first quarter of this year. It was down 7 percent in the last quarter of 2021. Former New York Fed president Bill Dudley said that a U.S. recession is inevitable, and billionaire investors like Leon Cooperman, Jeff Gundlach, and Carl Icahn agree.
Leading economists predict that the Federal Reserve’s plan to rapidly increase interest rates to counteract rising inflation will cause a severe economic downturn. According to RSM US Chief Economist Joe Brusuelas, the Fed’s decision to raise rates is causing a series of supply shocks cascading through the economy. Yardeni Research predicts that the chance of a recession is closer to 30 percent, with inflation rates the highest that they’ve been in four decades.
The Next Recession Forecast: Why?
These worrisome predictions might seem unusual since employment rates are below 3.6 percent, and the economy has been strong. So why is the Fed preparing to raise interest rates, then? Employers are having difficulties finding workers to fill positions, which has led to higher wages and inflation. Matthew Luzzetti is Deutsche Bank’s chief U.S. economist, and he predicts that the growth being seen is inflationary growth rather than sustained growth. Inflation is caused by higher prices from increased production costs, including raw materials and wages.
The Fed started raising interest rates in May to combat consumer demand and get prices under control, but it’s challenging to get this right, and it takes time. Treasury Secretary Larry Summers doesn’t think the rate hikes will improve things anytime soon; he added that too much money was pumped into the economy from low-interest rates and high COVID-19 relief payments.
How Long Will the Next Recession Last?
CNN Business also posts that the Fed has historically been unable to correct small overshoots of employment and inflation without causing the economy to go into recessions. On the bright side, Deutsche Bank predicts that things will get back to normal by mid-2024. NPR shared some more positive outlooks as well. They shared information from a Wall Street Journal survey, showing that 63 percent of economists thought the Fed could get the country out of the red.
Brian Deese is the director of President Biden’s National Economic Council. While he admitted that the high inflation poses a significant challenge, he feels that the extra money that consumers have accumulated, and the strong job market put the U.S. in a better position. The more optimistic economists also feel that the Fed has the capability of designing a “soft landing” that could avert a recession. And while impossible to predict precisely how long the next recession will last, CNBC posts that history shows that the average U.S. recession lasted 15 months.