Despite Accelerating Pessimism, Economists Remain Hopeful: Survey

Charles Paikert

7 June 2022

Consumers and corporate executives may be pessimistic, but economists haven’t completely given up hope that a recession can be avoided.

The most recent survey of the American Association of Individual Investors painted a gloomy picture, and JP Morgan chief executive Jamie Dimon jolted markets last week when he warned of an “economic hurricane right out there down the road coming our way.”

But economists surveyed by the financial services trade organization SIFMA were more hopeful.

Half of the more than two dozen chief US economists participating in SIFMA’s Economic Advisory Roundtable survey thought the US could avoid a recession this year.

And global banking giant UBS is also more optimistic, expecting only a 25 per cent chance of a recession in the next twelve months, according to an investor briefing released yesterday by Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.

“We are seeing clear signs of improvement, reaching that light at the end of what has been a very long and very painful tunnel,” said Lindsey Piegza, chief economist and managing director at Stifel Financial Corporation. “At the same time, many of last year’s risks still remain, complicating the outlook for the domestic recovery: policy risks, inflation risks, supply distortions, an ongoing labor supply shortage, and more recently international conflict and more aggressive monetary policy, just to name a few.”

According to the survey, economists anticipate GDP growth of 1.5 per cent this year and an unemployment rate of 3.5 per cent. The economists expect 2022 inflation measured by the consumer price index to be 6.3 per cent and nearly all thought inflation had reached peak levels. Eight out of 10 economists surveyed were somewhat or very confident that the Federal Reserve Board can achieve its 2 per cent inflation goal in a sustainable way.

Fed actions key
But the Fed’s upcoming rate hikes will be the “largest wild card” affecting economic growth, according to Piegza, who is also chair of SIFMA’s Economic Advisory Roundtable.

More aggressive rate hikes which result in lower economic activity represent a downside risk, Piegza said at a press briefing following the release of the survey results, while a more dovish approach would provide the economy and financial markets with welcome, albeit “unexpected” support.

All of the surveyed economists expect the Fed to raise the target Federal Fund rates by 50 basis points this month. Nearly 40 per cent expect a 200 bps level by the end of this year, while slightly more than half thought the fund rate would increase would be less than 200 bps.

Piegza said she was “more pessimistic” about inflation than the surveyed economists, expecting inflation “likely to remain elevated” until supply and demand are balanced out and the supply chain crisis and the war in Ukraine is resolved.

Long term, Piegza said she expected the economy to continue to struggle “with significant monetary and fiscal support no longer in the picture.”

Upside variables to the economic predictions, according to the SIFMA survey, include an increase in consumer spending, resolution of geopolitical tensions, and supply chain recovery.

Downside risks include monetary policy overcorrection, escalation of geopolitical tensions, and higher inflation.