How likely is a recession? Following years of speculation of a coming recession, brought about by the federal government’s COVID economic stimulus packages designed to keep the economy ticking during lockdowns, more economists are speaking out about the possibility of an incoming economic downturn.
In an interview published on Wednesday, just two days before the May 2022 Consumer Price Index report showed inflation reaccelerating, Noble prize-winning economist Robert Shiller warned of a “good chance” of the economy entering a recession.
Shiller, a professor at Yale University, suggested that fears of a coming recession may prove to be a “self-fulfilling prophecy.”
“The fear can lead to the actuality,” Shiller said in an interview with Bloomberg, describing a “good chance” of a recession.
Shiller said that the chances of a recession over the next two years are now one-in-two, which he said is “much higher than normal.”
In normal economic conditions, the risk of a recession is usually considered to be around 15% – taking into consideration the possibility of major unexpected economic events like the COVID-19 pandemic.
Shiller’s predictions have proven accurate in the past, too. Not only did Shiller predict that the housing bubble would burst in 2005, but he also literally wrote the book on how viral stories – like the prediction of a coming recession – can become actual economic events.
Lakshman Achuthan, the co-founder of the Economic Cycle Research Institute, also told Yahoo Finance Live this week that the signs of a coming recession are easy to see.
“The job market is pretty tight, so therefore this could mean a mild recession,” he said. “One of the things that we are seeing from our research – because we do look at 22 economies around the world – is that there is a setup for a more severe recession.”
Achuthan warned that a coming recession would likely be an international one, and unlike anything the world has seen since the early 1980s.
We’re Not In A Recession…Yet
While May’s inflation figures show that the rising cost of living still hasn’t peaked, with the Consumer Price Index report revealing an 8.6% increase in prices compared to May 2021, that doesn’t mean the United States economy is in recession. A recession requires a prolonged and substantial decline in economy activity – and while prices are still going up, some economic indicators show the economy actually returning (somewhat) to normal.
For many economists, a recession only occurs after two consecutive quarters of negative growth in gross domestic product, which the United States has not yet seen. And as prices continue to go up, the Federal Reserve’s interest rate hike in May and an expected additional increase in the next week will mean that consumers are less likely to borrow money and spending may decrease.
Inflation could, therefore, finally be brought to heel – but at the cost of GDP decline and a recession sometime within the next year or two. Whether that happens in the next six months or 24 months, however, nobody truly knows.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and reports on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.