Thomas BabychanAmidst a slowing economy and the possibility of additional interest rate hikes, economists at the Federal Reserve of the United States have informed policymakers that the chances of the USA entering recession by next year have risen to 50 percent. The details about warnings by economists were accessed from the latest meeting minutes of the Federal Open Market Committee.
The last meeting of the Federal Open Market Committee was on November 1st and 2nd where it was decided to increase the key interest rates by 75 basis points.
“Sluggish growth in real private domestic spending, a deteriorating global outlook, and tightening financial conditions were all seen as salient downside risks to the projection for real activity; in addition, the possibility that a persistent reduction in inflation could require a greater-than-assumed amount of tightening in financial conditions was seen as another downside risk,” the minutes said.
The majority of the staff working with the Federal Board of Governors are highly acclaimed economists who have a significant influence on the decision-making bodies. Policymakers at the Federal Reserve of the United States look into the briefings and forecasts prepared by these economists before taking key policy decisions related to the macroeconomic condition.
It is also important to note that, this is the first time in March 2022, staff at Federal Reserve have warned policymakers regarding a possible recession in the economy of the United States of America. Federal Reserve which is the central bank of the United States has been following an aggressive interest rate hike policy for the last few months to bring down high inflation in the economy.
The energy crisis triggered by the Russian special military operation in Ukraine had pushed up prices of essential commodities in the market. Heightened fuel prices and skyrocketing prices for essential commodities pushed inflation in the United States to a 40-year-high level. Foreseeing high inflation rates, US Federal Reserve had begun increasing interest rates in March 2022. US Fed has now hiked the key interest rate by 75 basis points for the fourth time in a row this year.
A survey of economists conducted by Bloomberg News stated that there is a 65 percent chance for the US economy to fall into recession by next year. An analysis by Bloomberg News states that US Economy will surely fall into a recession in the next fiscal year.
As the latest inflation and job data are showing signs of easing inflation in the economy, market, and analyst expects US Feds to slow down its aggressive rate hike policy. US Federal Reserve Chairman, Jerome Powell said a few days ago that no one knew whether a recession will happen or not.