Former Treasury Secretary Larry Summers predicted a recession in the United States on Sunday, citing rising inflation fears as his “best judgment.”
During an appearance on NBC’s “Meet The Press, Summers told moderator Chuck Todd,
“Look, nothing is certain, and all economic forecasts have uncertainty. My best guess is that a recession is ahead,’
“I base that on the fact that we haven’t had a situation like the present with inflation above 4 percent and unemployment beyond 4 percent without a recession following within a year or two,” Summers said.
Summers also added that it’s likely “that in order to do what’s necessary to stop inflation, the Fed is going to raise interest rates enough that the economy will slip into recession.”
“And I think that view, which was not a common view a couple months ago, is now the view of a number of statistical models and the view of a range of forecasters and I think will increasingly become a consensus view,” he said.
On Monday, Biden pushed back against Summers’ prediction, saying he didn’t believe a recession was inevitable in the coming months.
“No, I don’t think it is,” said Biden, when asked if a recession is more likely than ever. “I was talking to Larry Summers this morning, and there’s nothing inevitable about a recession.”
Experts proclaim a recession when a nation’s economy sees negative gross domestic product (GDP), growing unemployment, declining retail sales, and contracting measures of income and manufacturing for an extended period of time, according to Forbes.com.
However, according to a Wall Street Journal poll, the poll’s write-up cautions that “recession probability soars as inflation worsens,” with the probability of a recession occurring in the next 12 months currently at 44 percent.
“A 44 percent recession probability has rarely been observed outside of an actual recession since the Journal began asking the question in mid-2005,” the poll’s write-up continued. In comparison to earlier figures, the 44 percent is even more alarming. “Economists assigned a 38 percent probability in December 2007, the month the 2007-2009 recession began, and a 26 percent probability in February 2020, when the last recession began.”
The report also added that Forecasters have raised recession probability due to a number of factors: higher borrowing costs, a blistering pace of inflation, supply-chain problems and commodity-price shocks stemming from the war in Ukraine. Mostly, however, they see dimming chances that a steeper path of rate increases by the Fed can cool inflation without inducing higher unemployment and an economic downturn.
“We now believe the U.S. economy is headed for a mild recession in the coming months,” said Greg Daco, chief economist for EY-Parthenon, a consulting firm. “While consumers will continue to spend freely on leisure, travel and hospitality over the summer, a persistently elevated inflation backdrop, surging interest rates and plunging stock prices will erode spending power, severely curtail housing activity and constrain business investment and hiring.”
Economists expect unemployment to rise as the Fed raises rates, although they see it staying at relatively low levels by historical comparison. On average, they forecast unemployment rising from 3.6% in May to an average of 3.7% at the end of 2022 and 4.2% at the end of 2023.
One bright spot is that economists still expect the economy to grow this year, although they slashed their growth projection in half in the most recent survey. On average, they see inflation-adjusted gross domestic product rising 1.3% in the fourth quarter of 2022 from a year earlier, down from 2.6% in the April survey. Last year the economy grew 5.5%, the fastest since 1984, following a 2.3% drop in 2020 when the pandemic began.
Recent data suggest the U.S. economy is starting to slow under the combined weight of soaring inflation and climbing interest rates—including the highest mortgage rates since 2008.
Watch it here: Youtube/Blommberg Markets and Finance
Sources: Thegatewaypundit, Dailymail, Yahoo, Wsj