Most Economists See U.S. Recession by 2021
NABE survey shows 10 percent of members expect a recession to start this year, and 42 percent project a recession will start in 2020.
More than three-quarters of business economists expect the United States to enter a recession by the end of 2021, though a majority still estimate the Federal Reserve will continue raising interest rates this year.
According to a semiannual National Association for Business Economics (NABE) survey released Monday, 10 percent see a recession beginning this year; 42 percent project one starting next year; and 25 percent expect a contraction to start in 2021. Other respondents to the Jan. 30–Feb. 8 poll of nearly 300 NABE members expect a recession later than 2021 or expressed no opinion.
The projections come ahead of the U.S. Commerce Department’s release this week of the advance reading for fourth quarter gross domestic product (GDP), which was delayed by the government shutdown. Economists surveyed by Bloomberg projected, as of Friday, that growth cooled to a 2.5 percent annualized rate in the final months of 2018, from 3.4 percent in the third quarter.
NABE members are divided on the impact of the Fed’s balance sheet normalization process. Asked about the effect of the tightening on short-term funding rates, a fifth said they see no impact, a fifth said it will raise rates by 25 basis points, and a fifth said rates will rise 50 basis points or more. The remaining respondents didn’t know or express an opinion.
“There is a schism between what the NABE panel and the markets think about the Fed’s rate path and the shrinking of its balance sheet,” says Megan Greene, chief economist at Manulife Asset Management and chair of the survey. “Markets are pricing in no more interest-rate hikes in 2019, whereas a majority of the NABE panel expects one or two rate hikes.”
A plurality of 23 percent of survey respondents expect the Fed to raise the main rate by somewhere from 50 basis points to 3 percent before beginning to cut rates. Only 11 percent expect the Fed’s next rate move to be an easing.
President Donald Trump’s trade policies remain a concern for most of the panelists. Thirty-six percent said the existing tariffs, if they remain in place, will reduce 2019 GDP growth by 25 basis points, while 26 percent see a drag of 50 basis points and 15 percent of panelists expect the reduction to exceed 50 basis points.
Economists also expect the tariffs to boost inflation this year.
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