The Inevitable Coming Recession and How To Prepare for It

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Choo Choo

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Recession

“O come, let us worship and bow down: let us kneel before the LORD our maker.”  Psalms 95:6 (KJV) 

Former Goldman Sachs CEO Lloyd Blankfein added to recession talk after telling CBS on Sunday that an economic downturn is “a very, very high risk factor.”

It is not only Blankfein warning about a GDP contraction. Many Wall Street analysts are increasingly becoming worried that a recession could turn into the base case for forecasts over the next 12 to 24 months.

A recent Bloomberg monthly survey of economists found that the probability of a recession over the next 12 months is 30 percent, the highest in two years. This is double the odds economists had anticipated in February.

Morgan Stanley projects (pdf) a 27 percent chance of a recession in the next 12 months, up from 5 percent in March.

“It now appears that inflation is broadening out and has the potential to stay higher for longer,” wrote Morgan Stanley Wealth Management’s chief investment officer Lisa Shalett, in her weekly note. “This is a scenario that places upward pressure on longer-run inflation expectations and keeps the Fed in a policy acceleration mode.”

Federal Reserve Bank of Minneapolis President Neel Kashkari told a town hall event in Michigan on Tuesday that it is unclear if the central bank will need to trigger a recession to bring inflation down.

“My colleagues and I are going to do what we need to do to bring the economy back into balance,” he said. “What a lot of economists are scratching their heads and wondering about is: If we really have to bring demand down to get inflation in check, is that going to put the economy into recession? And we don’t know.”

This comes after former Fed Chair Ben Bernanke acknowledged that the central bank moved too late to tackle inflation, telling The New York Times that the United States could slip into a period of stagflation.

Most CEOs are also bracing for a recession, according to a recent Conference Board Measure of CEO Confidence. The gauge dipped into negative territory, tumbling in the second quarter to 42, down from 57 in the first quarter.

While CEOs believe the Fed’s quantitative tightening will help combat inflation over the next few years, they are worried that the central bank’s efforts will induce a recession.

“CEO confidence weakened further in the second quarter, as executives contended with rising prices and supply chain challenges, which the war in Ukraine and renewed COVID restrictions in China exacerbated,” said Dana M. Peterson, Chief Economist of The Conference Board, in a statement. “Expectations for future conditions were also bleak, with 60 percent of executives anticipating the eco…

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