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Many forecasters believe a recession is coming


Warning lights are flashing for the U.S. economy. A growing number of forecasters now believe a recession is on the horizon. They're worried that high inflation will force a crackdown by the Federal Reserve, and the upheaval caused by Russia's invasion of Ukraine isn't helping. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: By many measures, the U.S. economy has staged a remarkable comeback from the pandemic downturn. Employers have added nearly 6 1/2 million jobs in the last 12 months, and unemployment has plunged to just 3.6%. So why is Matthew Luzzetti, the chief U.S. economist for Deutsche Bank, sounding the alarm about a looming recession?

MATTHEW LUZZETTI: It's probably surprising to be talking about recessions at this point given the momentum that we've seen particularly in the labor market.

HORSLEY: And yet, it's precisely that sizzling labor market that has Luzzetti worried. As employers scramble to find scarce workers, they're bidding up wages, and that's helping push inflation far above the Federal Reserve's target of 2%.

LUZZETTI: The ultimate conclusion is we are having very strong growth, but it is inflationary growth.

HORSLEY: Luzzetti thinks the Fed will have no choice but to crack down - hard. And he predicts by late next year, that will push the economy into recession.

Other forecasters are also getting nervous. Economists surveyed by the Wall Street Journal put the odds of recession in the next 12 months at 28% - more than double what they were a year ago. For much of the last year, the Federal Reserve thought inflation was primarily the result of supply chain snarls that would work themselves out once the pandemic eased. Luzzetti agrees there may be some relief in store, but it's taking a long time.

LUZZETTI: We continue to push out our expectation for when these supply chain issues will be resolved. And that is one area where the recent invasion of Ukraine has exacerbated and elongated those price pressures and the supply chain issues that we are to face.

HORSLEY: What's more worrisome is that inflation is spreading thanks to consumers' insatiable demand for all kinds of goods and services. Last month, the Fed began raising interest rates in an effort to tamp down that demand. What the central bank would like to do is cool off inflation without sending a chill through the whole economy. But the monetary thermostat is not that precise, and former Treasury Secretary Larry Summers says the chances of the Fed getting it just right are not good.

LARRY SUMMERS: It could happen, but I don't think it's terribly likely.

HORSLEY: Summers has been arguing for more than a year that both Congress and the Fed were pumping too much money into the economy with big COVID relief payments and rock bottom interest rates. It would have been better, Summers says, had they started turning the taps off sooner. Mopping up now from the resulting high inflation is likely to be painful.

SUMMERS: Now the bathtub is overflowing, and it's much easier to stop a bathtub from overflowing than it is to get the water back.

HORSLEY: White House economic adviser Brian Deese is pushing back on that gloomy forecast. At a breakfast sponsored by the Christian Science Monitor last week, Deese argued the strong job market and extra money in consumers' bank accounts will be an asset that should help the country to weather any coming economic storm.


BRIAN DEESE: The United States is better positioned than any other country in the world to navigate through this very difficult period of time.

HORSLEY: Summers says he understands the administration's goal of running a hot economy and boosting workers' wages. But, he adds, the resulting high inflation and threat of recession have created a political and economic minefield.

SUMMERS: Increases in demand can be profoundly good for workers, but if they're unsustainable and they necessitate subsequent recessions, then they ultimately boomerang.

HORSLEY: Summers, who's a Democrat, argues in the past, voters' frustration with high inflation helped to fuel Republican victories from Richard Nixon to Ronald Reagan. GOP congressional candidates are hoping that history repeats in midterm elections later this year.

Scott Horsley, NPR News, Washington.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.