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Potential U.S. Recession Signals Increase Amid Economic Uncertainty
The likelihood of the U.S. facing a recession appears to be nearly balanced, as indicated by recent findings from a Deutsche Bank survey. This raises significant questions regarding the trajectory of the American economy.
The survey, conducted between March 17-20, reveals a 43% probability of a downturn within the upcoming 12 months, according to the opinions of around 400 respondents.
Despite low unemployment figures and various indicators suggesting ongoing, albeit slowing, economic growth, the survey results echo trends seen in other sentiment measures, which indicate rising concerns among consumers and business leaders about the increasing risk of economic slowdown or recession.
Federal Reserve Chair Jerome Powell addressed these concerns in a recent statement, noting that, overall, he perceives the economy as “strong” and highlighted “significant progress” achieved over the past two years.
Nonetheless, in a policy meeting concluding last Wednesday, Fed officials adjusted their gross domestic product growth estimation for this year down to 1.7%, marking the slowest growth rate since 2011 if one ignores the Covid-19-induced contraction of 2020.
Moreover, projections for core inflation have been increased to 2.8%, exceeding the central bank’s goal of 2%. The Fed anticipates reaching this target by 2027.
This situation—a mix of rising inflation and stagnant growth—brings the specter of stagflation into focus, a scenario the economy has not encountered since the early 1980s. While few economists expect a repeat of that era, the risk of a policy dilemma looms, forcing the Fed to choose between stimulating growth and curbing inflation.
Market sentiments have shown increasing anxiety regarding future economic conditions. Jeffrey Gundlach, a bond market authority at DoubleLine Capital, expressed to CNBC that he sees recession probabilities hitting between 50% and 60%.
Morgan Stanley noted in a recent insight that the recent correction in equity markets was largely driven by an “uncertainty shock” stemming from fluctuating tariff policies, which investors fear might escalate into a broader economic slowdown or even a recession. “The core issue is that the U.S. may be facing a potential bout of stagflation, where economic growth slows while inflation remains persistent,” the firm warned.
In contrast, Powell expressed skepticism regarding the possibility of a scenario akin to past stagnations. “I wouldn’t characterize the current situation as comparable to earlier instances,” he stated.
Analysts from Barclays have pointed out that market-driven indicators suggest only a slight slowdown in economic activity, predicting a growth rate of merely 0.7% for the year, which teeters just above recessionary thresholds.
In a noteworthy shift, the UCLA Anderson Forecast recently initiated its first “recession watch,” primarily motivated by apprehensions surrounding President Donald Trump’s tariff strategies. Economist Clement Bohr has indicated that a downturn could arise in one to two years but can be “entirely avoided” if the administration eases its tariff threats.
Bohr cautioned, “This watch serves as a reminder to the current administration: be cautious about what you wish for, because achieving all your ambitions could lead to a significant recession—one that may not merely follow traditional patterns but could manifest as stagflation.”
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