Top Moody’s economists see ‘equal’ chance of recession in next two years

Moody’s Analytics’ chief economist said Tuesday that there is a one-in-three chance of a recession this year, with an “even” chance within two years.

Economists have offered mixed views on the likelihood that the Fed’s efforts to fight inflation will lead to a recession, with the Fed itself acknowledging that a “soft landing” may be difficult but still possible.

“I think the odds of a recession starting in the next 12 months are about one in three, and probably closer to even in the next few years,” said Mark Zandi, chief economist at Moody’s Analytics. on C-SPAN on Tuesday.

“Recession risk is high, but I think if we do suffer one in the next year or two, it will be a more typical, relatively mild recession.”

Inflation remains at its highest level in years due to factors such as pandemic supply chain bottlenecks, a surge in demand following the COVID-19 shutdown and Russia’s invasion of Ukraine, which has hit energy and food prices particularly hard.

The Fed has embarked on a series of rate hikes aimed at cooling the economy, raising rates by half a percentage point in May, the largest increase since 2000.

Since March, President Biden has taken various steps to lower gas prices and fight inflation, including releasing 1 million barrels a day from the National Strategic Petroleum Reserve — a strategy Zandi said “seems to help” Curb the rise in natural gas prices.

In an op-ed published Monday in The Wall Street Journal, Biden outlined a three-pronged approach to tackling inflation and protecting the Fed after former President Trump leaves office.

“My predecessors disparaged the Fed, and past presidents have tried to inappropriately influence Fed decisions during periods of rising inflation,” Biden wrote, promising not to.

Biden also reiterated his focus on addressing affordability for families struggling to pay for gas, prescription drugs, housing and child care.

Consumer prices rose 6.3% in the 12 months through April. Personal Consumption Expenditure Price Indexwhich the Fed uses to measure inflation.

the president said his Housing Supply Action PlanIts goal is to build hundreds of thousands of affordable housing units over the next three years, which will be integral to managing long-term inflation.

While Zandi said the Biden administration and lawmakers have few tools to quickly and directly address the problems that are driving high inflation, he agreed that immediate investment in affordable housing would ease future economic challenges.

Moody’s Analytics estimates housing supply shortage of more than 1.5 million households Nationwide.

Analysis by other economists, including Harvard Kennedy School professor and former U.S. Treasury Secretary Larry Summers, mirrors Zandi’s forecast for an impending recession.

“A recession is clearly more likely in the next few years,” Summers said on Bloomberg TV.

“We’ve never had an inflation rate above 4 in the U.S. [percent] Unemployment below 4 [percent] And we didn’t have a recession for the next two years,” he added.

Deutsche Bank economists became the first major Wall Street analysts to predict a recession in early April.

“We no longer see a soft landing for the Fed,” their analysts wrote in a note. “Instead, we expect more aggressive monetary policy tightening to tip the economy into recession.”