The US will likely enter a recession in the coming year, the Wall Street Journal reported on Monday, citing its latest survey of economists.
According to the report, the probability of a recession in the US within the next 12 months is 63%, up from 49% projected in the previous WSJ survey in July.
The economists polled said that risks had increased due to the Federal Reserve’s efforts to bring down inflation by hiking the key interest rate. The Fed has raised the federal funds rate by 75 basis points at each of its last three meetings, most recently in September, bringing the rate to the 3.00-3.25% range. Over half of the economists surveyed said they expect the Fed to hike rates further and even to do “too much,” which would destabilize the economy. They expect the country’s gross domestic product to contract by 0.2% in the first two quarters of 2023, while in the previous survey, they had predicted 0.8% growth during that period.
A shrinking economy would be expected to affect the labor market, as employers would be forced to cut jobs. Nonfarm payrolls are forecast to decline by about 34,000 per month in the second quarter of 2023 and by 38,000 a month in the third quarter. The unemployment rate is expected to rise from the current 3.5% to 3.7% in December, and to 4.3% by June 2023.
“The Federal Reserve is choosing between the lesser of two evils – take a recession with a rise in unemployment today or risk a more corrosive and entrenched inflation taking root,” Diane Swonk of KPMG told the news outlet.
On average, the economists expect a recession to be relatively short at around eight months, and the US economy to return to growth by the end of next year.
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