Recession likely to begin in first quarter 2023: Fannie Mae

Abstract

Dive Brief: The U.S. economy will likely tip into recession during the first quarter of 2023 and shrink 0.4% for the full year as the combination of high inflation and tightening monetary policy bedevils consumers and businesses, Fannie Mae economists said. "Consumer confidence measures increasingly indicated dissatisfaction with current levels of inflation, offering support to the Fed's aggressive posture." The consumer price index during 2022 will likely rise 5.7%, Fannie Mae said, noting that higher-than-expected price pressures in June pose an "Upside risk" to its forecast. Fed officials in June also supported raising the benchmark interest rate by either 50 or 75 basis points at their July 26-27 meeting, noting persistent supply chain bottlenecks and the need to ensure their credibility in fighting the highest inflation since 1981, according to minutes of their meeting. Fed Chair Jerome Powell and other policy-makers have indicated they plan to achieve a sustained decline of inflation to their 2% target even at the risk of jolting economic growth. "Recession risks currently appear more salient than the risk of runaway inflation," Moody's Analytics said, forecasting greater than 50% odds of a downturn during the next two years. Former Treasury Secretary Lawrence Summers said he agrees with those odds and predicted the Fed will fail to achieve a "Soft landing," or slow growth enough to reduce inflation without causing a recession. During the past six decades, a recession has occurred whenever the Fed has withdrawn stimulus with inflation exceeding 8% and unemployment below 4%, as it is today, according to Summers.