Forecasters See a Growing Chance of Recession Amid Fed Tightening

March 16, 2022

Economic forecasters have become more concerned about a recession and raised their inflation projections the Federal Reserve kicks off a series of interest rate hikes in an effort to combat rapidly rising prices.

In CNBC’s latest Fed Survey, the economists and fund managers surveyed increased the possibility of a recession in the next 12 months to 33%. While that remains relatively low, it is up 10 percentage points from the February survey. The forecasters also see a 50% chance that Europe will see a recession in the next 12 months.

On average, the respondents expect the Fed to raise rates 4.7 times this year, but nearly half said they expect between 5 and 7 rate hikes before the end of the year. The survey found that the forecasters expect the rate hike cycle to end with a funds rate of 2.4%, which would be considered a neutral rate for the Fed, but half of the respondents said the Fed may ultimately have to raise rates above neutral to curb inflation.

The consensus expectation is that the consumer price index is likely to peak in March at 8.5%, then gradually decrease to a still elevated 5.2% by the end of the year. The year-end projection is nearly a full percentage point higher than the February survey. They expect inflation to slow to 3.3% by the end of 2023, which would still be well above the Fed’s 2% target.

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