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U.S. economists are ratcheting up their expectations of a U.S. recession within the next 12 months after a year of interest rate hikes and with increased risk of tighter credit conditions after the failures of Silicon Valley Bank and Signature Bank earlier this month.
The probability of a downturn within the next year rose to 65% from 60% in February, according to a Bloomberg survey of economists conducted March 20-27. That’s also jibing with expectations reflected in financial markets. SA contributor Mott Capital Management says the bond markets are betting that a recession is around the corner.
On March 22, the Fed raised its policy rate by 25 basis points to 4.75%-5.0%, its ninth rate hike since March 16, 2022. Before then, the rate stood at 0.0%-0.25%. The path represented that fastest tightening cycle in more than 40 years.
The economists still expect the central bank to boost the federal funds rate by another 25 bps in May, then see the Fed pausing for the rest of the year.
They also expect inflation to be more stubborn that in February’s survey, expecting inflation to average 3.9% in 2023 on an annual basis compared with 3.4% in the previous survey.
The economists also expect unemployment to tick up to 3.9% in 2023 vs. the 4% they projected in the prior month. The unemployment for February stood at 3.6%, according to the Department of Labor. The economists surveyed by Bloomberg see the rate rising to 4.7% in Q2 2024.
SA contributor Brad Thomas picks four recession-ready REITs.