Published by Fox Business | March 17, 2022
Odds of a U.S. recession have increased to 20% to 35% because of the Ukraine war, economists say
Goldman Sachs economists warned the probability of the U.S. economy plunging into a recession in the next year has risen dramatically in the wake of the Russia-Ukraine war.
The economists, led by Jan Hatzius, cut their forecast for economic growth this year to 1.75% from 2.0% and noted that such an outlook means there is a “higher risk” of about 20% to 35% that the U.S. enters a recession over the next year.
“While our baseline forecast assumes that further service sector reopening and spending from excess savings will keep real GDP growth positive in the coming quarters, uncertainty around the outlook is higher than normal,” they wrote in the Thursday analyst note. “We view the risks of a recession as broadly in line with the 20-35% odds currently implied by models based on the slope of the yield curve.”
The downgrade comes after the Labor Department reported that consumer prices soared 7.9% in February, the fastest pace since January 1982, when inflation hit 8.4%. Consumers are paying more for everyday necessities, including groceries, gasoline and cars.
The eye-popping reading – which marked the ninth consecutive month the gauge has been above 5% – has ramped up pressure on the Federal Reserve to chart a more aggressive course in normalizing monetary policy.
The central bank announced Wednesday that it would raise interest rates for the first time in three years as policymakers, hiking the benchmark fund by 25 basis points and bringing to an end the ultra-easy monetary policy put in place two years ago to prop up the economy through the coronavirus pandemic.
