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Global recession is a 'clear and present danger,' Citi economists warn

·2 min read

Citi economists warned on Wednesday that a global recession is a "real and present danger," forecasting a 50% chance of a downturn within the next year.

In a new analyst note, Citi strategists led by Nathan Sheets said they expect the global economy to expand by 2.9% this year and 2.6% in 2023 — lower than earlier estimates.

"On balance, our forecast sees the global economy skating through and avoiding a synchronized downturn," they wrote. "The risks to our forecast look skewed heavily to the downside. As such, we also reaffirm our 50% recession call articulated. Global recession is, indisputably, a clear and present danger."

There are growing fears on Wall Street that the Fed will trigger a downturn as it raises interest rates at the fastest pace in three decades as it races to catch up with runaway inflation.

WHY IS INFLATION STILL SO HIGH, AND WHEN WILL IT START TO COOL?

Fed policymakers in June approved a 75-basis point interest rate hike — the first since 1994 — pushing the federal funds target range to 1.5% to 1.75%. Another hike of that magnitude is on the table in July amid signs of stubbornly high inflation, Chairman Jerome Powell told reporters after the meeting, prompting investors to reassess the economic outlook.

Officials also laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the two-day meeting showed policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008.

Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. Mortgage rates are already approaching 6%, the highest since 2008, while some credit card issuers have ratcheted up their rates to 20%.

Although Fed Chairman Jerome Powell has said the central bank is not trying to induce a recession, he has not ruled out the possibility of a downturn and has admitted the odds of a successful "soft landing" are getting narrower.

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"There’s a path for us to get there," Powell told reporters at a post-meeting press conference, referring to a soft landing. "It’s not getting easier. It’s getting more challenging."