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Fed staff warn chance of recession in next year is now near 50%

The forecast, as detailed Wednesday in minutes of the Nov. 1-2 Federal Open Market Committee meeting, was the first such warning since the central bank began raising rates in March.

November 24, 2022 / 08:14 AM IST
The US Federal Reserve

The US Federal Reserve

Federal Reserve staff economists briefed policymakers this month that the chances of a US recession in the next year had risen to almost 50% on risks of slower consumer spending, global economic risks and further interest-rate hikes.

The forecast, as detailed Wednesday in minutes of the Nov. 1-2 Federal Open Market Committee meeting, was the first such warning since the central bank began raising rates in March.

“Sluggish growth in real private domestic spending, a deteriorating global outlook, and tightening financial conditions were all seen as salient downside risks to the projection for real activity; in addition, the possibility that a persistent reduction in inflation could require a greater-than-assumed amount of tightening in financial conditions was seen as another downside risk,” the minutes said.

“The staff, therefore, continued to judge that the risks to the baseline projection for real activity were skewed to the downside and viewed the possibility that the economy would enter a recession sometime over the next year as almost as likely as the baseline.”

The influential staff at the Fed’s Board of Governors in Washington plays an important role in the monetary policymaking process through briefings on economic conditions and forecasts prepared for the FOMC participants who make the ultimate decisions on interest rates at the meetings.

By comparison, economists surveyed by Bloomberg this month saw a 65% chance of recession in the next year, based on the median estimate. A Bloomberg Economics model puts the probability at 100%.

At the meeting, the FOMC elected to raise the central bank’s benchmark rate by three-quarters of a percentage point -- triple the usual amount -- for the fourth time in a row in a bid to bring down inflation, which soared this year to the highest levels in four decades. But officials also signaled they would soon slow the pace of tightening, which would give central bankers more time to judge the impact of previous rate hikes on the economy.

During a press conference after the meeting, Fed Chair Jerome Powell told reporters that he thought “no one knows whether there’s going to be a recession or not and, if so, how bad that recession would be.”
Bloomberg
first published: Nov 24, 2022 08:14 am