The chief economist for Moody’s Analytics on Tuesday said there was a one-in-three chance of an economic recession this year and “even odds” within two years.
Economists have offered various views on the likelihood that the Federal Reserve’s efforts to fight inflation will result in a recession, with the Fed itself conceding that a “soft landing” could be difficult, though is still possible.
“I would put the odds of a recession beginning in the next 12 months at about one in three, and probably close to even odds over the next couple of years,” Mark Zandi, chief economist at Moody’s Analytics, said Tuesday on C-SPAN.
“Recession risks are high, but I think that if we do suffer one over the next year or two, it will be a more typical, relatively mild economic downturn.”
Inflation remains at its highest level in years, due to factors including pandemic supply chain bottlenecks, spiked in demand after COVID-19 shutdowns, and Russia’s invasion of Ukraine, which has hit energy and food prices particularly hard.
The Federal Reserve has begun a series of interest rate hikes aimed at cooling off the economy, raising rates by half a percentage point in May, the largest increase since 2000.
President Biden has taken various measures to reduce gas prices and combat inflation since March, including releasing 1 million barrels of oil per day from the nation’s Strategic Petroleum Reserve – a strategy Zandi said “seemed to help quite a bit” in curbing gas price increases.
In an op-ed published Monday in the Wall Street Journal, Biden outlined a three-pronged approach to tackle inflation and protect the Federal Reserve after former President Trump left office.
“My predecessor demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation,” Biden wrote, pledging not to do the same.
Biden also reiterated his focus on addressing affordability for families struggling to pay for gasoline, prescription drugs, housing and child care.
Consumer prices increased by 6.3 percent over 12 months ending in April, according to the Personal Consumption Expenditures Price Index, used by the Federal Reserve to measure inflation.
The president said his Housing Supply Action Plan, which aims to build hundreds of thousands of affordable housing units in the next three years, will be integral to managing long term inflation.
Though Zandi said the Biden administration and lawmakers have few tools to quickly and directly address the issues causing high inflation, he agreed immediate investments in affordable housing construction would mitigate future economic challenges.
Moody’s Analytics estimates a housing supply shortage of more than 1.5 million homes nationwide.
Analyses from other economists, like Larry Summers, a Harvard Kennedy School professor and former U.S. Treasury secretary, mirror Zandi’s predictions about a looming recession.
“Recession in the next couple of years is clearly more likely than not,” Summers said on Bloomberg TV.
“We have never had a moment in the United States when inflation was above 4 (percent) and unemployment was below 4 (percent) and we didn’t have a recession within the next two years,” he added.
And Deutsche Bank economists in early April became the first major Wall Street analysts to predict a recession.
“We no longer see the Fed achieving a soft landing,” Luzzetti wrote in an analyst note. “Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession.”