\f11/14/22, 4:23 PM US set for recession next year, economists predict | Financial Times FT-IGM Survey US inflation US set for recession next year, economists predict FT-IGM Survey forecasts downturn in 2023 as Fed tries to stamp out worst inflation in 40 years The price of petrol now averages $5 a gallon in the US, a record, just as Americans are taking to the roads for summer vacations @ David Paul Morris/Bloomberg Colby Smith in Washington and Caitlin Gilbert in New York JUNE 12 2022 The US economy will tip into a recession next year, according to nearly 70 per cent of leading academic economists polled by the Financial Times. The latest survey, conducted in partnership with the Initiative on Global Markets at the University of Chicago's Booth School of Business, suggests mounting headwinds for the world's largest economy after one of the most rapid rebounds in history, as the Federal Reserve ramps up efforts to contain the highest inflation in about 40 years. The US central bank has already embarked on what will be one of the fastest tightening cycles in decades. Since March it has raised its benchmark policy rate by 0.75 percentage points from near-zero levels. The Federal Open Market Committee gathers once again on Tuesday for a two-day policy meeting, at which officials are expected to implement the first back-to-back half-point rate rise since 1994 and signal the continuation of that pace until at least https://www.ft.com/content/53fcbbf1-39e3-483c-a6f2-bode432ed5a3 1/7\f115141.922. 4:23 PM US sel for recession nexl ye al. economisls predict | Financial TIITIEES The survey results, which were collected between June 6 and June 9, run counter to the Fed's stance that it can damp demand without causing substantial economic pain. The central bank predicts that, as it raises interest rates, employers in the redhot US labour market will opt to pare back historically high job openings as opposed to laying off staff, in turn cooling wage growth. Jay Powell, the Fed chair, has conceded that the central bank's efforts to moderate ination may cause \"some pain\11/14/22, 4:23 PM US set for recession next year, economists predict | Financial Times More economists now believe annual core inflation will exceed 3% in 2023 What is your estimate of the likelihood that core PCE inflation will exceed 3% per annum in the year ending Dec 2023? Feb 2022 survey June 2022 survey 40% 39% 35% 20 35% 30% 25% 29% 20% 24% 15% 10% 5% 12 0% Very unlikely Very likely Somewhat unlikely Somewhat likely About as likely as not Source: FT-IGM survey of 45 economists from Feb 21 to 24 and survey of 49 economists from Jun 6 to 9 FINANCIAL TIMES FT Graphic: Caitlin Gilbert / @caitlinsgilbert Compared with February's survey, more economists are now of the view that core inflation, as measured by the personal consumption expenditures price index, will htips://www.ft.com/content/53fcbbf1-39e3-483c-a6f2-bode432ed5a3 4/711r14r22. 4:23 PM US sel for recession nerd year. economisls prediotl Financial Times exceed 3 per cent by the end of 2023. Of the June respondents, 12 per cent thought that outcome was \"Very likely\11/14/22, 4:23 PM US set for recession next year, economists predict | Financial Times Source: FT-IGM survey of 49 economists from Jun 6 to 9 FT Graphic: Caitlin Gilbert / @caitlinsailbert FINANCIAL TIMES Dean Croushore, who served as an economist at the Fed's Philadelphia branch for 14 years, cautioned that the central bank may need to eventually raise rates to roughly 5 per cent to contain a problem he believed was largely caused by the Fed waiting "far too long" to take action. "It's always tough to bring inflation down once you let it out of the bottle," said Croushore, who now teaches at the University of Richmond. "If they would just accelerate the rate increases a little bit more, it might cause a little financial volatility in the short-run, but they might be better off by not having to do as much later." Letter in response to this article: Entrepreneurs create jobs without inflation hangover / From Willem Thorbecke, Senior Fellow, Research Institute of Economy, Trade and Industry, Tokyo, Japan Copyright The Financial Times Limited 2022. All rights reserved. https://www.it.com/content/53fcbbf1-39e3-483c-a6f2-b0de432ed5a3 7/711/14/22, 4:23 PM US set for recession next year, economists predict | Financial Times FT Graphic: Caitlin Gilbert / @caitlinsgilbert Nearly 40 per cent of the economists warned that the Fed would fail to control inflation if it only raised the federal funds rate to 2.8 per cent by the end of the year. This would demand half-point rate rises at each of the central bank's next three meetings in June, July and September before downsizing to its more typical quarter- point cadence for the final two gatherings of 2022. Few respondents expect the Fed to resort to 0.75 percentage point increases. Further rate rises are also likely well into next year, said Christiane Baumeister, a professor at the University of Notre Dame, who thinks the Fed could lift its benchmark policy rate as high as 4 per cent in 2023. That is just above the level the majority of economists surveyed believe will be the peak of this tightening cycle. Most economists forecast the federal funds rate to reach 3-4% this cycle What do you expect the peak level for the federal funds rate to be in the current tightening cycle? 55% 55% 50% 45% 40% 35% 30% 25% 20% 15% 22% 10% 14% 2.% points 7 % points 4 % points 5 % points 5 % points https://www.ft.com/content/53fcbbf1-39e3-483c-a6f2-bode432ed5a3 6/7