(NEW YORK) — Alarm over a possible recession has blared for well over a year, but in recent months a cooldown of inflation alongside resilient job gains has quieted the din.
Growing optimism among some forecasters that the economy could avoid a recession altogether, however, faces a pair of tests this week.
The Federal Reserve on Wednesday will announce a decision on whether to impose its 11th interest rate hike since March 2022, potentially escalating an aggressive fight against inflation that risks plunging the nation into a downturn.
The following day, a government agency will release its first estimate of gross domestic product for the three months ending in June — a determination of whether the economy grew or shrank during that period.
“The economy has proven to be more robust and resilient than we thought,” Mark Hamrick, Washington bureau chief at personal finance company Bankrate, told ABC News, noting the possibility that the economy could avoid a severe recession.
“The chances have been rising recently,” he said. “That’s not guaranteed but it’s a rising hope. It’s like being on a dangerous journey and realizing you can see a finish line.”
Nearly three-quarters of forecasters surveyed by the National Association for Business Economics said that the probability of the U.S. entering a recession in the next 12 months is 50% or less, the organization announced on Monday.
Echoing that burst of optimism, the median of economists surveyed by Bloomberg this month put the odds of a recession within the next 12 months at 58%, down from 70% in December.
The fate of the economy will be determined in large part by the extent of rate hikes undertaken by the Fed and their ultimate effect, economists told ABC News.
For more than a year, the Fed has aimed to roll back price increases by slowing down the economy and slashing consumer demand. The approach, however, risks tipping the economy into a recession.
The policy appears to have succeeded in cooling prices. Inflation has fallen significantly from a peak last summer but remains one percentage point above the Federal Reserve’s target of 2%.
Last month, the Fed opted to leave its benchmark interest rate unchanged, ending a string of 10 consecutive rate increases that stretches back 15 months. Economists surveyed by Bloomberg this month expect a modest quarter-point rate hike.
The apparent downshift in the Fed’s inflation fight “means that it’s buying into the possibility of a soft landing or at least is willing to give it a try,” Stephan Weiler, a professor of economics at Colorado State University and a former Fed research officer, told ABC News.
Still, the full effect of rate hikes at the Fed typically takes hold after a time lag that is difficult to predict, leaving uncertain whether the economy will face a significant slowdown in the months ahead, Liz Ann Sonders, managing director and chief investment strategist at Charles Schwab, told ABC News.
“We know we had the most aggressive [Fed] tightening in more than 40 years, and it hasn’t so far led to this huge hit to the economy,” Sonders said. “What we don’t know is whether this time is different or whether it’s one of the lags.”
A clearer sense of the nation’s economic health will be made available on Thursday, when the Bureau of Economic Analysis releases its initial estimate of GDP growth over the three-month period ending in June.
The Federal Reserve Bank of Philadelphia found forecasters expect gross domestic product to have grown at an annualized rate of 1% over that period, which would mark continued growth but a slowdown from previous quarters.
Such results would indicate a slowdown from the 2% annualized GDP growth recorded over the previous quarter, which itself showed a cooling from the 2.6% growth displayed in the quarter before that.
However, the anticipated finding of 1% annualized growth would demonstrate that the economy expanded rather than shrank. Many observers define a recession through the shorthand metric of two consecutive quarters of shrinking in a nation’s GDP.
“The economy is slowing down,” said Weiler, of Colorado State University. “But it’s slowing down slowly.”
After the economic releases this week, a recession will remain possible but distant, said Hamrick, of Bankrate.
“We’ve had a bumpy ride at times but it really has yet to be one where a more dire outcome has seemed imminent,” he said.
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