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‘Risk of a recession is rising’ as problems just keep ‘cascading’ throughout the economy, economist says

April 11, 2022, 6:25 PM UTC

Economists are warning the U.S. could be headed for a recession as supply shocks caused by the war in Ukraine and ongoing COVID-19 lockdowns in China reverberate throughout the global economy.

A poll from Reuters, conducted between April 4 and 8, found that one in four economists believe the U.S. will experience a recession this year, with that number rising to 40% over the next 24 months. And economists surveyed by the Wall Street Journal this month were even more pessimistic. A whopping 28% said they are predicting the U.S. economy will fall into a recession sometime in the next 12 months, up from just 13% a year ago.

Many fear the Federal Reserve’s plans to rapidly raise interest rates in order to combat rising inflation could lead to a severe economic downturn.

“Risk of a recession is rising due to the series of supply shocks cascading throughout the economy as the Fed lifts rates to address inflation,” Joe Brusuelas, chief economist at RSM US, told the Wall Street Journal on Monday.

Even Wall Street veterans who have typically been more bullish are starting to sound the alarm. Ed Yardeni, the president of Yardeni Research, said he now sees a 30% chance of a recession in the U.S. this year, arguing the Fed may be forced to give the economy an “all-out recession-triggering shove” in order to fight inflation rates not seen in four decades. 

Vincent Reinhart, the chief economist of the U.S. investment manager Dreyfus and Mellon, says the inverted yield curve, Federal Reserve policy, and soaring energy costs make the likelihood of the U.S. experiencing a recession this year a 50-50 proposition.

“I would say it’s probably closer to a coin toss that the economy would be moving into a recession by the end of the year,” he told Yahoo Finance on Monday.

As a result of the alarming economic predictions, Wall Street is slashing its growth forecasts.

Morgan Stanley is expecting real gross domestic product (GDP) growth in the U.S. will fall to just 3.0% this year; that’s quite the drop from the 4.1% it had predicted at the start of 2021. And the Conference Board now sees U.S. real GDP growth slowing to just 1.7% in the first quarter of 2022, down from 7% in the final quarter of last year.

This new spate of downtrodden economic forecasts from economists comes after weeks of recession predictions from a growing chorus of billionaire investors including Carl Icahn, Jeff Gundlach, and Leon Cooperman. And former Federal Reserve officials have been getting in on the action as well, with former New York Fed president Bill Dudley saying last month he believes a U.S. recession is now “inevitable.”

Dudley said the Sahm Rule, which says that a recession is assured if the three-month moving average of the unemployment rate rises by half a percent point or more relative to its low during the previous year, will likely be triggered sometime this year.

However, former Federal Reserve economist Claudia Sahm, who created the Sahm Rule, argued that “rules are made to be broken” in a Substack post detailing possible exceptions to the Sahm rule on Sunday.

“No, the Sahm Rule is not forecasting a recession now,” Sahm wrote. “No, it’s not gloom and doom. It’s very clear that the labor market is cranking, and the unemployment rate is falling.”

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