US Recession Looms As Federal Reserve Hikes Interest Rates

According to a CNBC Fed survey, there is a 33% chance of a US recession in the next 12 months. This is up 10 percentage points from the previous survey done in February. With the Federal Reserve poised to start their series of interest rate hikes this month, the chances of a US recession increased considerably.

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US Recession Looms As Federal Reserve Will Raise Interest Rates This March

The US Federal Reserve remains under pressure to control inflation, which recorded a 7.9 rate last month. This is the highest year-on-year rate since 1982.

As a result, forecasters are raising the likelihood of a US recession. They also boosted their projections for inflation.

Meanwhile, the Fed continues to fend off the continuous rise in the prices of goods. At the same time, the Fed remains uncertain about the full effects of Russia’s invasion of Ukraine.  

As a result, CNBC’s Fed survey respondent raised the probability of a US rescission to 33% within the next 12 months. Meanwhile, the same survey also reported that for Europe, the likelihood of a recession there is now at 50%.  

Will Fed Raise Interest Rates Faster Due to Rising Prices?

Also, survey respondents argued on whether the Fed will raise rates faster due to the rise in prices of goods. Doing so will add to inflation or raise interest rates more because of a reduction in growth.

Guy LeBas, the chief fixed-income strategist at Janney Montgomery Scott, warned of turbulence ahead. “The tax impact of higher commodities prices is likely to slow the pace of hiking more than the inflationary impact is to accelerate it.”

However, Rob Morgan, SVP of Mosaic believes otherwise. “I expect six quarter-point rate hikes from the Fed in 2022,” he wrote. If the consumer price index (CPI) reaches 9% by March or April. The Fed might go for a 50-basis point hike by May. 

Fed Seen To Raise Interest Rates 4.7 Times This 2022

Based on answers from the 33 respondents contacted by CNBC, the Fed will likely raise an average of 4.7 times this year.

This means that the funds’ rate will close at 1.4% this year and 2% by the end of 2023. Almost half of the survey respondents foresee the Fed hike rates between five to seven times in 2022. 

Respondents also see the rate hike cycle to end at a peak rate of 2.4%. This is above the central bank’s neutral rate. However, many think that due to inflation, the Fed will ultimately raise rates beyond neutral.

Increasing the interest rates will push the CPI to peak at 8.5% by March. However, it will then gradually decrease and end 2022 at 5.2%, which is still high.

By 2023, respondents predicted the CPI to rise to 3.3%, which is still above the Fed’s preferred number.  

Awful Position For US

Peter Boockvar, the chief investment officer of Bleakley Advisory Group, foresees an unusual scenario. “We might be on the cusp of the Fed raising rates at the same time there is a minus sign in front of GDP. What an awful position to be in, but until inflation falls sharply, they have no choice but to carry on.” 

Meanwhile, the war in Ukraine isn’t helping. Respondents upgraded their inflation forecasts due to the Russian invasion. On average, they added 0.8 percentage points to their previous inflation forecast.

This moved the average to an above-trend figure of 2.8%. Consequently, the GDP forecast for 2023 also dropped by half a point to 2.4%.  

Watch the CNBC Television video reporting that ​​according to a CNBC Fed Survey, respondents, see a 33% chance of a US recession in the next 12 months:

Do you agree that a US recession is looming later this year?

Please Select One:

• Yes. A complete failure of the Federal Reserve to head off inflation last year guaranteed it.
• Yes. I guess the Fed won’t say inflation is transitory anymore.
• Yes. Inflation is killing all of us now. What business would want to keep running up bills by producing goods nobody can afford?
• No. There’s still a chance that rising interest rates can help bring down prices.

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Do you agree with the panel of respondents that a US recession is imminent? Will the Fed manage to tame inflation with their series of interest rate hikes?

Let us know what you think. Share your comments below.