Fed efforts to cut inflation to 2% set to trigger recession – US economists

HOUSTON (ICIS)–US economists are not confident that the Federal Reserve will be able to bring inflation down to its 2% goal in the next two years without triggering a recession, according to findings in the latest Economic Policy Survey by the National Association for Business Economics (NABE) on Monday.

Also, about one-fifth of a panel of 198 NABE economists responding in the survey conducted from 1-9 August believes that the US is already in a recession.

Nearly half (47%) expect a recession to begin by the end of 2022 or Q1 2023.

Regarding the Inflation Reduction Act that became law last week, about two-thirds of economists in the NABE panel favour the act’s policies, including those that reduce the deficit, expand Medicare benefits, and address climate change.

FISCAL POLICY
Respondents’ views on fiscal policy are essentially unchanged from NABE’s March 2022 policy survey.

Slightly more than half (50.5%) of survey respondents believe that current fiscal policy is too stimulative, while 44% find that current fiscal policy is “about right”.

On the Inflation Reduction Act, which was still being debated in the Senate while the survey was in the field, more than three-fourths of panelists (76%) support the $300bn deficit reduction goal, while 14% oppose the provision.

More than two-thirds of the panelists support the 15% minimum corporate tax – 69% in favour, 26% opposed.

Also, 63% of panelists support subsidies, rebates, and private-public investments to combat climate change, while 31% are opposed.

MONETARY POLICY
The economists view on monetary policies has shifted since NABE’s March survey.

Since then, the Federal Open Market Committee (FOMC) has approved four consecutive interest rate hikes.

As such, in the August survey 46% of panelists view monetary policy as “just right,” up from 22% in the March survey.

Nevertheless, 44% of panelists still view monetary policy as too stimulative. In March, 77% held that view.

Nearly three quarters (73%) of panelists in the current survey indicate they are “not very confident” or “not at all confident” that the Fed will reach its 2% inflation goal within the next two years without triggering a recession.

Only 27% feel confident, somewhat confident, or very confident that the Fed will achieve this outcome, known as a “soft landing”.

DOMESTIC POLICY
Roughly half (51%) of the panel supports raising the federal minimum wage, while 42% are against raising it.

More than half (52%) of survey respondents are against adopting a law that would classify gig workers as employees, while 30% favour adoption and 17% express no opinion.

Panelists were also asked what they see as the three most important policy issues to be debated in the upcoming November midterm election.

Nearly half (48%) believe that combating inflation is among the three most important issues.

Thirty-eight percent list climate change, 27% immigration policy, and 20% each indicate access to reproductive health care and ensuring free and fair elections are important issues to debate.

Asked about government action on gasoline prices, 37% of the economists see no policy response as necessary, while the same percentage supports lowering or suspending gasoline taxes, and 18% support continued oil releases from the Strategic Petroleum Reserve.

Disclosure: ICIS senior economist Kevin Swift is one of the NABE panelists.

Please also visit the ICIS Recession Watch topic page.

Thumbnail image shows US Federal Reserve Chairman Jerome Powell. Photo by MICHAEL REYNOLDS/EPA-EFE/Shutterstock