The U.S. economy is heading into a short and shallow recession over the coming year, according to economists polled by Reuters who unanimously expected the U.S. Federal Reserve to go for a smaller 50 basis point interest rate hike on Dec. 14.
The Fed has another half-point at least to go with rates early in the new year with inflation still running well above the Fed’s 2% target even though economists put a steady 60% probability on a recession taking place in 2023.
After raising the federal funds rate 75 basis points at each of the previous four meetings, all 84 economists polled Dec. 2-8 expected the central bank to go for a slightly softer half a percentage point to 4.25%-4.50% this time.
While the central bank is attempting only to deliver some pain and not a full-fledged downturn, economists, who tend to be slow as a group in forecasting recessions, raised the probability of one in two years to 70% from 63% previously.
That suggests investors and stock markets may have gotten ahead of themselves with optimism over the past month that the world’s largest economy may skirt a recession entirely. That is already showing up in safe-haven flows to the U.S. dollar.