Many top economists, such as Harvard’s Larry Summers, say the economy is likely to enter a recession this year or next, thanks to the large interest-rate increases from the Federal Reserve.
The economy shrank 1.6% in the first quarter and 0.6% in the second. Consumer prices rose 8.3% in the 12 months through August, and the Fed has lifted interest rates by 3 percentage points since March.
Summers has noted that anytime in the past 60 years when inflation exceeded 4% and unemployment was under 5%, a recession has followed within two years. Unemployment totaled 3.5% in August.
Average Joes Are Worried, Too
It’s not just top economists who are worried about the possibility of a recession by the end of next year. A total of 69% of Americans are in the same boat, according to a July survey by personal finance website Bankrate.com.
In an ominous sign, 2 out of 5 Americans (41%) say they are unprepared to handle such an event. And nearly a third (31%) of that cohort is doing nothing to prepare.
On the bright side, three-quarters (74%) of Americans say they are actively taking steps to prepare for an economic downturn.
Nearly half (47%) of Americans say they’re cutting discretionary spending, 35% are saving more for emergencies, 30% are paying down credit-card debt, 24% are seeking additional/stable income and 19% are saving more for retirement.
JPMorgan CEO Dimon’s Concern
Meanwhile, add JPMorgan Chase Chief Executive Jamie Dimon to the list of those anticipating recession. While the economy is still doing well, raging inflation, soaring interest rates and the Ukraine war present dangers, he told CNBC.
“These are very serious things which … are likely to put the U.S. in some kind of recession six to nine months from now,” he said.
Like many others, Dimon says the Fed waited too long to raise rates and thus must go big now, putting the economy at risk.
“Let’s keep our fingers crossed that they manage to slow down the economy enough so that whatever it is, is mild — and it is possible,” he said.
Looking at the stock market, Dimon said the S&P 500 could slide “another easy 20%” from current levels. The index has dropped 24% year to date.
On the other side of the discussion, Ark Innovation (ARKK) asset manager Cathie Wood has written an open letter to the Federal Reserve, criticizing its monetary policy.
Specifically, the Fed is “making a policy error that will cause deflation,” Wood wrote, referring to the Fed’s interest rate increases. Wood has argued for months that the economy is suffering from deflation and is already in a recession.
