May 17, 2022

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One of Biden's favorite economists sees a big chance of a recession in the next two years

One of Biden’s favorite economists sees a big chance of a recession in the next two years

More economists are beginning to predict a recession in the US in the next two years Federal Reserve Moves to rein in inflation are the hottest in a decade — including inflation that the Biden administration has repeatedly cited.

Mark Zandi, Moody’s chief economist — a respected economist who has often provided favorable analyzes of the White House agenda — said during a webinar this week that he believes the odds of a recession over the next two years are about 35%.

The Reserve Bank raises interest rates for the first time in 3 years, and projects increase 6 times with inflation

“The risk of the economy going into recession at some point in the next 12, 18, 24 months is very high, uncomfortably high. And I’d say it’s going up,” Zandi said.

President Biden speaks at the Alumni Foundation Event Center at North Carolina Agricultural and Technical State University in Greensboro, North Carolina, on April 14, 2022. (MANDEL NGAN/AFP via Getty Images/Getty Images)

This is in line with the file Goldman Sachs Predictions This suggests that the tightening policy path the US central bank is about to embark on raises the odds of a recession to 15% in the next 12 months and 35% in the next 24 months. Goldman analysts noted that 11 of the 14 tightening cycles since World War II have been followed by a recession within two years, although only eight of them can be partly attributed to Fed policy.

The analyzes come as the Federal Reserve takes a more hawkish approach to fighting inflation, which is at its highest level since December 1981. Policy makers raised interest rates by a quarter of a percentage point in March and have since indicated the possibility of sharper increases of half a point. . In the coming months, starting in May.

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“It is appropriate that we move a little more quickly,” the Fed chief said Jerome Powell He said Thursday during a panel discussion at the Spring Meetings of the International Monetary Fund and the World Bank. “I also think there’s something to the idea of ​​forward-loading wherever one sees fit. So this points to a 50bp trend on the table.”

Traders are now pricing in a 100% chance of a rate hike of at least half a point when policy makers meet on May 3-4. This will be the first time since 2000 that the US central bank will raise the federal funds rate by 50 basis points.

In this file photo on January 29, 2020, Federal Reserve Chairman Jerome Powell pauses during a press conference in Washington. (AP Photo/Manuel Balce Ceneta, File/AP Newsroom)

Some economists believe that the Fed has waited too long to confront the inflationary explosion, while others have expressed concerns that moving too quickly to stabilize prices could trigger a recession. Higher interest rates tend to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.

Powell countered concerns that further tightening by the central bank would lead to a recession and maintained optimism that the Fed could strike a delicate balance between taming inflation without crushing the economy.

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However, he acknowledged the difficulty of the task ahead, and said it was “absolutely necessary” for central bankers to restore price stability.

“Our goal is to use our tools to resynchronize demand and supply, so that inflation returns to where it is without slowing down to stagnation,” Powell said. “I don’t think you’ll hear anyone at the Fed say that’s straightforward. It’s going to be difficult.”

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