Poll: According to top economists, there is a 33% chance a recession is imminent

The cost of financing a home or a car will no doubt rise this year, but the ultimate risk is that interest rates could rise too high – which could weigh on growth or, worse, plunge the economy into recession.
Experts polled for Bankrate’s first-quarter economic indicator say there is a 33 percent chance the US economy could contract over the next 12 to 18 months, with key downside risks related to the Ukraine conflict, high inflation and tighter monetary policy.
Higher rates could come on several fronts – starting with the 10-year Treasury yield affecting the 30-year fixed-rate mortgage. Economists expect the policy rate to rise to 2.72 percent a year from now, almost a quarter of a point higher than on March 25, when Bankrate’s first-quarter survey period ended.
Still, the majority (or 58 percent) of economists see the 10-year yield rising even faster than that rate, reflecting the wide range of responses. Four economists have indicated a 3 percent return, and another is forecasting a 3.5 percent return – both the highest levels since 2018.
Federal Reserve officials, meanwhile, have projected at least seven overall hikes in 2022 and four more in 2023, according to their latest forecasts. The US Federal Reserve has already gotten one out of the way, raising interest rates for the first time since 2018 at its mid-March meeting. That would put the federal funds rate — which affects short-term debt like auto loans and credit card rates — in a target range of 1.75 to 2 percent by the end of 2022 and 2.75 to 3 percent by the end of 2023.
“The Federal Reserve has all but announced that we should expect a slew of more rate hikes as it seeks to fulfill its stable-price mandate,” said Mark Hamrick, senior economic analyst at Bankrate and head of the Washington office. “Behind the curve, the central bank could surprise to the upside with rate hikes.”
Forecasts and Analysis:
Why higher interest rates could trigger a recession
However, investors expect the Fed to take even more aggressive action. Most market participants are expecting a federal funds rate of 2.5 to 2.75 percent by the end of 2022, which would require three 50 basis point hikes considering officials have just six more this year, according to CME Group’s FedWatch have scheduled meetings. The Fed hasn’t raised interest rates so aggressively since 1994 — a year when consumer inflation averaged 2.6 percent, according to the Labor Department.
This time, however, price pressures are three times higher than before, with consumer inflation up 7.9 percent year-on-year in February.
Fed officials have indicated they warm to the idea of getting so aggressive, with Chair Jerome Powell saying in a speech in March that the Fed will hike rates by more than 25 basis points “at one or more meetings”. , when officials believe this is necessary to cool inflation.
But if interest rates rise as high as market participants are projecting, that would be above the neutral rate, the so-called level at which the cost of borrowing begins to stunt rather than boost growth.
“We run the risk of the Fed overdoing the rate hike process as it tries to maintain policy credibility,” said Mike Englund, chief economist at Action Economics. “We also face the risk that the war in Ukraine will escalate, leading to large gains in food and energy prices in 2022.”
Officials don’t expect the US economy to slow, with Powell saying in March the financial system was well-positioned to handle tighter monetary policy and hopes for a soft landing. But experts say the main way to fix inflation is to slow the economy and jobs.
“Interest rates rise, GDP [gross domestic product] and unemployment is rising, leading to slack, cooling inflation,” said Robert Brusca, chief economist at Fact and Opinion Economics and a former New York Fed official. “The Fed has posited a magical process that will bring inflation down and leave activity and unemployment unaffected.”
If demand falls in a sector due to higher borrowing costs, the sharpest drop could be in the housing market. Mortgage rates fell to record lows during the pandemic amid a massive Fed asset-buying program, which helped fuel a housing boom. But in addition to raising interest rates, the Fed has also stopped buying these securities, and mortgages are already up, rising 4.73 percent last week, according to the latest data from Bankrate’s national survey.
Coupled with uncertainty over Ukraine’s conflict, fading fiscal stimulus and subdued consumer spending, higher interest rates are just one corner of the economic jigsaw puzzle that could slow growth over the next 12 months.
“The combination of geopolitical events, elevated inflation and the change in Fed policy has noticeably increased the risk of a recession over this period, but the most likely outcome is a slowdown in growth, not negative growth,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
Hear from the experts
methodology
The Bankrate Economic Indicator survey of economists for the first quarter of 2022 was conducted on March 17-25. Poll requests were emailed to economists nationwide, and responses were voluntarily submitted online. Respondents were: Ryan Sweet, Senior Director of Economic Research, Moody’s Analytics; Yelena Maleyev, Associate Economist, Grant Thornton LLP; Odeta Kushi, Deputy Chief Economist, First American Financial Corporation; Lawrence Yun, Chief Economist, National Association of Realtors; Robert Spendlove, Senior Economist, Zions Bank; Robert Hughes, Senior Research Fellow, American Institute for Economic Research; Joseph Mayans, Director of US Economics, Experian; Mike Fratantoni, Chief Economist, Mortgage Bankers Association; Bernard Baumohl, Chief Global Economist, The Economic Outlook Group; Scott Anderson, Executive Vice President and Chief Economist, Bank of the West; Bernard Markstein, President and Chief Economist, Markstein Advisors; Scott J. Brown, Chief Economist, Raymond James Financial; Mike Englund, chief economist, action economics; John E. Silvia, Founder and President, Dynamic Economic Strategies; Kathy Bostjancic, US Chief Economist, Oxford Economics; Bill Dunkelberg, Chief Economist, National Federation of Independent Business; Tenpao Lee, economics professor, Niagara University; Robert A. Brusca, Chief Economist, Fact and Opinion Economics; and Robert Frick, business economist, Navy Federal Credit Union.