Today, Federal Reserve Chair Jerome Powell will deliver the first day of his two-day semiannual testimony on monetary policy before the Senate Banking Committee and the House Financial Services Committee. The big questions will likely focus on whether or not the Fed’s more aggressive rate hikes will push the U.S. economy into a recession.
Of the Federal Reserve’s previous 12 cycles of hiking interest rates since the 1950s, nine have ended in recession.
Major banks are raising bets the Fed will not be able to avoid a recession, as Goldman Sachs economists raised estimates for the risk of a recession up to 30%, from 15%. Over the next two years, Goldman now forecasts the probability of a recession at 48%. Economists at Morgan Stanley placed the odds of a recession for the next 12 months at around 35%.
Nomura says a U.S. recession by the end of this year is now more likely than not. In a note, Nomura forecast a mild recession starting in the fourth quarter of this year. The bank warned that financial conditions will tighten further as consumer sentiment sours, energy and food supply disruptions worsen, and the global growth outlook deteriorates.
"It's important to note that the National Bureau of Economic Research (NBER), which is the official agency of record that identifies recessions, typically doesn't do so until six months after one has started. But the more people talk about a pending recession, the heavier the psychological load becomes on businesses, consumers and investors. That could accelerate the onset of a recession as businesses and consumers pull back on spending in anticipation," said Caleb Silver, Editor-in-Chief of Investopedia.