Recession Risk Nears 50% as Fed Lowers Growth Forecast to 1.7%

Deutsche Bank's latest survey indicates that the probability of the U.S. economy entering a recession within the next 12 months is nearing 50%. Conducted between March 17 and 20, the survey involved approximately 400 respondents who, on average, predicted a 43% chance of an economic downturn in the coming year. Despite the current low unemployment rate and continued economic growth, albeit at a slower pace, the survey results reflect growing concerns among consumers and business leaders about the risk of an economic slowdown or recession.

Federal Reserve Chairman Jerome Powell acknowledged these market concerns during a recent policy meeting, although he emphasized the overall strength of the current economic environment. However, the Federal Reserve lowered its GDP growth forecast for the U.S. to 1.7% for the year, the lowest rate since 2011, excluding the economic contraction during the COVID-19 pandemic in 2020. This adjustment underscores the challenges facing the economy, as growth slows while inflation remains elevated.

The Federal Reserve also raised its forecast for core inflation to 2.8%, significantly above the central bank's 2% target. While officials expect to achieve this target by 2027, the simultaneous occurrence of slowing economic growth and rising inflation has raised concerns about stagflation, a phenomenon not experienced since the early 1980s. This scenario presents a dilemma for the Federal Reserve, which must balance the need to stimulate economic growth with the imperative to control inflation.

Market sentiment has become increasingly tense in recent weeks, with experts like DoubleLine Capital's CEO Jeffrey Gundlach predicting a 50% to 60% chance of a recession. The recent stock market pullback has been largely attributed to investor uncertainty over trade policies, which could further evolve into concerns about economic slowdown or recession. However, the more pressing concern is the potential for stagflation, where economic growth slows while inflation remains high.

While some analysts, including those from Barclays, suggest that the U.S. economy will only experience a mild slowdown, the bank's forecast for U.S. economic growth this year is a mere 0.7%, dangerously close to the threshold for a recession. The UCLA Anderson Economic Forecast Center has also issued a recession warning, predicting that the U.S. economy could enter a recession within the next one to two years if current trade policies remain unchanged. The center's economist, Clement Bohr, emphasized the need for cautious policy implementation to avoid a severe economic downturn or stagflation.