With turmoil in the markets, high inflation and impending interest rate hikes that will make borrowing money more expensive, many Americans are wondering if the economy is heading toward a recession.
Lloyd Blankfein said last weekend that it is a very high risk factor and consumers should be prepared for it.
The odds of a U.S. recession in the next year have been steadily rising, according to a recent survey of 37 economists. The odds are double from three months ago.
The threat of a recession is typically 15% in a given year due to unforeseen events.
The likelihood of a recession this year is low, according to a chief economist at a financial services company. It getscier in the years of 2023 and 2024.
According to The National Bureau of Economic Research, a recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months.
The real gross domestic product is an inflation-adjusted value of goods and services produced in the United States. It decreased at an annual rate of 1.4% in the first quarter of 2022. A negative quarter to start the year suggests the economy might be contracting, since many economists agree that 2% is a healthy annual rate of growth for GDP.
The rising inflation has recently shown signs of slowing down. It's still well above the Fed's 2% target, with a year-over-year rate of 8.3% in April.
Gas and rent are more expensive for consumers because of a high rate of inflation. In March and May, the Fed raised their interest rates, with five more expected to follow this year. The hikes make borrowing money more expensive for businesses and consumers. Many economists still think the GDP will grow in 2022, but the rate of inflation decreasing is less clear.
Positive economic indicators can be considered as well. The U.S. economy had its 12th straight month of job gains of 400,000 or more in April. Despite interest hikes and inflation, employment levels and consumer spending are strong.
Victor Canalog, head of the commercial real estate economics division within Moody's, says inflation in terms of rising prices needs to work its way into actual spending behavior.
He points out that people are still spending more, but at what point will they stop?
The risks remain despite the positives. Faucher says that the Federal Reserve is walking a fine line with its monetary policy, as doing too much or too little to control inflation could hurt the economy.
Faucher says rising interest rates are designed to cool off growth, hopefully without pushing the economy into recession. If the central bank raises their rates too much, it can push the economy into recession.
We will have felt the cumulative impact of all of those interest rate increases, so I'm more concerned about that.
Get smarter about your money and career with our weekly newsletter.
There are major drawbacks to interest-only mortgages.
All Rights Reserved © 2024
