Economic downturn discussions, even if only of a mild nature, have surfaced following the Federal Reserve's aggressive interest rate hikes during the ongoing tightening phase. Although central bank officials have not publicly mentioned the possibility of a recession, top corporate leaders appear considerably more convinced that one is looming.
Optimistic Fed Stance: According to data compiled by Visual Capitalist from official sources, Federal Reserve staff members have assigned a negligible probability of a recession occurring within the next 12 months.
The "Summary Of Economic Projections" released by the central bank after the September rate-setting meeting showed that the median GDP forecast for 2023 is 2.1%, with the unemployment rate estimated at a benign 3.8%.
Fed forecasters estimate a slowdown in GDP growth to 1.5% in 2024 and a pickup in pace to 1.8% in both 2025 and 2026.
CEOs Not That Optimistic: About 84% of CEOs see a looming recession, the report said, citing Conference Board's CEO survey. Graphics shared in the report, citing Bloomberg data, show that the C-suite is now more optimistic than they were a year ago.
The percentage of S&P 500 companies mentioning inflation, material costs, economic slowdown, and job cuts in earnings calls has declined over the year.
That said, the number of companies citing inflation remains at an elevated 68% in the second quarter of 2023, while economic slowdown has been mentioned only by 11% of the companies.
The yield curve puts the probability of a recession at 61%, going by a New York Fed model estimating recession probabilities using the difference between the yield of 10-year and 3-month Treasury yields.
Economists are relatively more sanguine as they see only less than a 50% chance of a recession. Specifically, investment firms Goldman Sachs and Bank of America call for a 15% and 35-40% probability of a recession, respectively.
The report also delved into bull- and bear-case scenarios for a recession. If consumer spending, which fuels about 70% of the U.S. economic activity holds up, a recession is less likely. On the contrary, record-high household debt and rising corporate defaults could prove to be dampeners.
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