Economists Raise Alarm That Recession Is Closing In After Yellen, Biden Play Down Risks

By the telling of the Biden administration, the writing is not on the wall that the economy is heading into a recession. But economists do not share this optimism and a prominent number are predicting that a recession is lurking just around the corner.

On Monday, the Wall Street Journal shared the results of its latest survey of 53 economists and it presented a growing pessimism that the U.S. will avoid a recession. Of 53 economists polled, 44% said that they anticipate a recession will take place in the next 12 months.

In the view of the economists, rising inflation coupled with tightening monetary policy are recessionary factors driving their views. According to the Journal, this number is seldom seen in their past surveys outside a recession in progress.

Inflation data from May, the most recent information available, showed that prices rose by about 8.6% for consumers and 10.8% for producers. Both were powered by an enduring combination of supply chain pains and high commodity prices, especially gas prices, that have pushed up inflation.

The other dominant factor is the Federal Reserve’s hawkishness since March, when it began raising interest rates. Last week, the Fed announced that it would raise rates by three quarters of a percentage point in the biggest hike since 1994. Investors have reacted to the Fed’s moves by paring back their positions and investing in less risky assets.

Economists surveyed by the Journal predict that inflation is likely to stand close to 7% and for unemployment to go up as the Fed raises rates. By the end of next year, they believe unemployment will be closer to 4.2% than the current level of 3.6%.

This outlook stands in contrast to the optimistic outlook presented by members of the Biden administration. On Sunday, Treasury Secretary Janet Yellen said that a recession is not a foregone conclusion, but she conceded that the economy will likely slow.

“It’s been growing at a very rapid rate and the economy has recovered and we have achieved full employment. We expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable," Yellen explained during an appearance on ABC News.

Her comments echoed previous comments made by President Joe Biden. In an interview with the Associated Press last week, Biden said a recession was “not inevitable” and appeared to characterize the recession fears as something based more on perception than economic reality.

"They shouldn’t believe a warning," Biden told the AP when asked whether Americans should expect a recession. “First of all, it’s not inevitable. Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.”