The economists see risks of a recession, with one-third seeing a downturn as likely within the next two years while the rest believe Powell and his colleagues will be able to avoid a contraction. Powell has said their goal is to achieve a soft landing -- a slower U.S. economy with a still-robust labor market and inflation that falls to the central bank’s goal of about 2%.
“The economy will likely go into a growth recession if not a full-blown recession, where growth is too weak to keep the unemployment rate falling,” Grant Thornton LLP chief economist Diane Swonk said. It’s “hard to see how we get the labor market on a more sustainable long-term path without a fairly sharp reduction in the demand for workers.”
Wall Street economists have recently been raising more concerns, with Goldman Sachs Group Inc. estimating chances of a contraction at about 35% over the next two years, while Deutsche Bank AG has predicted a major recession with the unemployment rate rising several points. Bloomberg Economics’ recession-probability model has estimated a 44% chance of recession happening before January 2024.
Balancing that risk, the Fed could well stop raising rates even with inflation somewhat above its target, in the view of the economists. The FOMC would likely tolerate a rate of around 2.5%, in the median of the forecasts.
The economists generally think the Fed will get monetary policy about right. If they were setting policy, they say they would raise rates by a half point at each of the next two meetings with the target rate peaking at 3% in December 2023 -- very close to what they expect from the central bank.
--With assistance from Sarina Yoo.
This article was provided by Bloomberg News.