Are we or aren’t we headed for a recession?

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You don’t have to be a close follower of Wall Street to know that it’s a nerve-wracking time for financial markets these days.

The S&P 500, Dow, and Nasdaq are all in bear market territory, having fallen 20% or more from their peaks. Treasury yields are on a steady march higher as the Federal Reserve continues to raise rates by leaps, rather than little hops. Mortgage rates, meanwhile, have more than doubled this year and are at a 20-year high.

Yet for all the bad news, there’s plenty of uncertainty about whether the United States actually is in a recession—or even whether we will be. The National Bureau of Economic Research defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The GDP has already shown two quarters of negative economic growth, but unemployment is low.

There’s a lot of nuances at play, so to get a better idea of ​​what lies ahead for the economy and how long the tough times might last, it helps to get the opinions of the experts. And while, admittedly, there’s not a lot of optimism in the short term, not all of the leading minds in economics think a recession is a certainty just yet.

The optimists

Let’s start with the optimists. While they’re few and far between, a couple of notable economists say it’s still possible to avoid a recession (though even they admit it will be tricky).

Chicago Federal Reserve President Charles Evans, speaking to CNBC last week, he said was “cautiously optimistic” that the US could avoid a recession. He did, however, add a caveat, saying that prediction would only hold true if there were “no further adverse shocks.” And we’ve had plenty of those in the past two years.

“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that, something has happened,” he said.

Those comments came just one day after Susan Collins, the new president of the Federal Reserve Bank of Boston, said she believes the economy is resilient enough to handle the higher interest rates the Fed is pushing.

In her first speech as president of the Boston Fed, Collins, a Harvard- and MIT-trained economist, and the first woman of color to lead a regional Fed branch, acknowledged that the way to bring down inflation from its current levels was with a higher unemployment rate, but said the effect on the overall economy from that would be mild.

“There is some apprehension about the possibility of a significant downturn,” Collins said. “I do believe the goal, which I share with my [Fed] colleagues, of a more modest slowdown, while challenging, is achievable. . . . It is quite likely that inflation is near peaking and perhaps may have peaked already.”

The pessimists

Evans and Collins, though, have an interest in keeping a positive outlook. Recession is not a word anyone wants to say out loud in Washington, DC, unless they can use it to unseat political opponents.

Among high-profile economists outside of the Beltway, the view on where we’re headed is much dimmer.

Mohamed El-Erian, a leading economist, president of Queens’ College in Cambridge, England, and chief economic advisor at Allianz, has been a critic of the Federal Reserve’s decisions over the past two years, saying the US is, essentially, in a no win position now.

“The Fed is playing massive catch-up to counter high and damaging inflation,” he wrote in a Bloomberg opinion piece last week. “But having fallen so far behind, it is now forced to aggressively raise rates into a slowing domestic and global economy. With that, the once wide-open window for a soft landing has been replaced by the uncomfortably high probability of the central bank tipping the US into a recession.”

He’s hardly alone in that pessimism.

Carl Icahn, legendary investor and one-time corporate raider, said “the worst is yet to come” at a recent conference hosted by Marketwatch. In that same talk, he noted that the rise in inflation was one of the key factors that ended the Roman Empire.

dr. Doom chimes in

And New York University professor and CEO of Roubini Macro Associates, Nouriel Roubini, whose foresight of the 2008 housing market crash earned him the nickname of Dr. Doom, says he believes a recession will hit the US before the end of the year.

“It’s not going to be a short and shallow recession; it’s going to be severe, long, and ugly,” he told Bloomberg.

Roubini is especially fatalistic, saying the S&P 500 could see a correction of up to 40%, and the recession is likely to spread worldwide. He has been encouraging investors to go light on stocks and heavy on cash. While you won’t earn much interest—and cash will lose value against inflation—it will be better, he argues, than the coming drops in other equities.

David Kelly, JP Morgan Asset Management’s chief global strategist, who has more than 20 years of experience on Wall Street, shares Roubini’s pessimism, telling CNBC the US economy has “one foot in the grave” and laid some of the blame for that at the Fed’s feet, noting that inflation is already on the decline, but the Federal Reserve board of governors keeps pushing rates dramatically higher.

“It really looks like it could get pushed into a recession, and I just don’t see the reason why,” he said last month after the Fed’s most recent 75 basis-point increase on interest rates. “If inflation is coming down slowly, let it come down slowly. . . . I think they [the Fed] just want to sound hawkish. I’m trying to figure out what I’m supposed to be so scared of here.”

The list goes on (and on and on). . .

Steve Hanke, a professor of applied economics at Johns Hopkins University who served as a senior economist on President Reagan’s Council of Economic Advisers from 1981 to 1982, told CNBC last month that the probability of recession was “much higher than 50% . . . maybe even higher than 80%.”

Columbia University economics professor and internet darling Adam Tooze, in a September 22 interview with The Guardiansaid the chances of a global recession are now “extremely severe.”

World Trade Organization director-general, Ngozi Okonjo-Iweala, recently told Bloomberg“I think a global recession—that’s what I think we are edging into.”

How long would a recession last?

Assuming the doomsayers are correct, how long would this recession have a grip on the economy?

A lot of that could be influenced by the midterm elections. A Republican Congress could make it difficult for the Biden administration to push through financial packages.

Roubini says the recession could last through all of 2023, since governments “are running out of fiscal bullets” to stimulate the economy. And hedge funds, private equity, and credit funds, he said, “are going to implode” during this crisis.

Hanke (in a separate interview) said he expects this to be “one whopper of a recession in 2023.” And he anticipates that inflation will continue through next year and possibly into 2024. His models call for inflation to be at 5% at the end of 2023—more than twice what the Federal Reserve is shooting for.

For its part, Bank of America, in a note to investors, said it expects the recession will span the first half of 2023, with inflation then beginning to taper off. It projects one measure of prices—the Core PCE (Personal Consumption Expenditures)—to fall from its current rate of 4.6% to 2.5% by the end of 2023.

Bridgewater Associates founder Ray Dalio, speaking at MarketWatch’s Best New Ideas in Money conference, also warned that the current slowdown in economic growth, caused by the Fed’s recent interest rate hikes, is going to last a while.

“We are right now very close to a 0% growth year,” he said. “I think it’s going to get worse into 2023 and then 2024, which has implications for elections.”

As for the housing market? The head of the National Association of Homebuilders says we’re already in a “housing recession.” Pantheon Macroeconomics’ Ian Shepherdson echoed that sentiment in a September 23 research note, saying sellers will be feeling the pain of the economic squeeze for a long time to come.

“The plunging trend in sales has further to go, and prices are falling,” he wrote. “A headlong collapse in prices is unlikely, but we still expect a total decline of up to 20% by the middle of next year.”

Unless inflation drops quickly, many experts predict this bumpy ride could last a while.

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