The U.S. economy is heading into a short and shallow recession over the coming year, Reuters reports.
It comes with no respite from rate hikes yet.
Economists are expecting 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 of a shallow recession taking place in 2023.
After raising the federal funds rate 75 basis points at each of the previous four meetings, economists and experts expect the Fed 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 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 economy may completely avoid a recession entirely.
Experts said that unless inflation recedes quickly, the economy appears headed for trouble, but possibly a bit later than expected.
There are already clear signs the economy is slowing, particularly in the U.S. housing market, often the first to react to tightening financial conditions, and the epicenter of the 2007-08 recession.
Existing home sales have fallen for nine months straight. House prices have already been in retreat, and are expected to drop another 12 percent peak-to-trough and nearly 6 percent next year.
Economists are saying that any recession should be both short and shallow.
The U.S. economy is the largest in the world. It is forecast to grow just 0.3 percent next year, and expand at annual rates well below the long-term average, which is typically about 2 percent, until 2024.
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