A recession is unlikely for 2022, but it’s not 100% off the table, says one prominent Wall Street economist.
Nomura Chief U.S. economist Robert Dent told Yahoo Finance Live he sees the potential for a “mild recession.”
“When we think of a mild recession I think the best example is probably what happened in 2021, maybe a 2 percentage point increase in the employment rate, a couple of quarters of weak GDP growth,” Dent said. “In terms of time willing, we are most concerned about potentially 2024. We think that the cumulative risk of a recession between now and the end of 2024 stands at about 35% to 40%. A lot of that is just coming from what we think is going to be this very aggressive response from the Fed to actually get inflation under control and make sure the labor market actually cools down.”
Dent thinks the Federal Reserve will raise interest rates to 3.75% to 4% by July 2023. For 2022 and 2023, Dent sees U.S. real GDP rising 3.5% and 1.3%, respectively.
The task at the Fed to wrangle inflation is Herculean.
The Consumer Price Index (CPI) rose by 7.9% in February, marking the fastest pace of annual inflation in 40 years amid a push higher in rent, food and used car prices. Meanwhile, the Personal Consumption Expenditures index (PCE) rose 6.4% in February, accelerating from a 6.1% increase in January.
It represented the fastest rate of inflation since 1982.
Added Dent, “We would largely agree that the inflation situation facing the Fed is quite a conundrum for them, and it will be difficult to navigate.”
Dent’s sentiment dovetails with JPMorgan CEO Jamie Dimon, who said in his annual shareholder letter on Monday the Fed is in a tough spot.
As prices have climbed throughout the economy, the Fed has begun to hike interest rates to cool things down. In turn, that has triggered a yield curve inversion and a groundswell of pros to express worry about a sharp economic slowdown this year.
Bridgewater Associates Founder and Co-chief investment officer Ray Dalio stopped short of predicting a recession in an exclusive interview with Yahoo Finance. But, the billionaire investor is concerned about the pace of economic growth.
“I think that most likely what we’re going to have is a period of stagflation. And then you have to understand how to build a portfolio that’s balanced for that kind of an environment,” Dalio said.