The US economy may be heading for a recession in the next year, economists told The Washington Post.
Though the job market and consumer spending have remained strong, economists expressed growing concerns that rising borrowing costs for consumers and businesses could cause a sudden pullback after the Federal Reserve raised interest rates and hinted at additional rate hikes this year after years of near-zero interest rates.
The Fed hopes the rate hikes will ease inflation but economists worry the increases coupled with ongoing uncertainty about the pandemic and Russia’s invasion of Ukraine could cause the economy to shrink.
“Recession risks are high — uncomfortably high — and rising,” Mark Zandi, chief economist at Moody’s Analytics, told the Post. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”
Numerous top banks warned of growing recession risks in just the past week.
Goldman Sachs CEO Lloyd Blankfein said there is a “very, very high risk” of recession.
Wells Fargo CEO Charle Scharf said there was “no question” the economy appears headed for a downturn.
Former Fed Chairman Ben Bernanke warned that the US could be headed for “staglation,” a combination of a slowing economy and high inflation.
It’s not just the rate hikes.
New home construction slowed in April and mortgage demand continues to decline.
Some of the biggest US retailers this week reported sagging sales and profits due to higher costs and inventory issues.
Major retailer stocks plunged. Walmart stock fell 11% on Tuesday, its biggest loss in 35 years.
Target shares plummeted 26% after a 52% drop in quarterly profits.
“While we anticipated a post-stimulus slowdown in these categories … we didn’t anticipate the magnitude of that shift,” Target CEO Brian Cornell said in a Wednesday earnings call. “When we talk to our guests, they often express their concerns about a host of rapidly changing conditions, ranging from geopolitics to the high and persistent inflation they’ve been experiencing.”