Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange. Image Credit: AP

New York: More than three-quarters of business economists expect the US to enter a recession by the end of 2021, though a majority still estimate the Federal Reserve will continue raising interest rates this year.

Ten per cent saw a recession beginning this year, 42 per cent project one next year, while 25 per cent expect a contraction starting in 2021, according to a semi-annual National Association for Business Economics survey released Monday. The rest expect a recession later than 2021 or expressed no opinion, the Jan. 30-Feb. 8 poll of nearly 300 members showed.

The projections come ahead of the Commerce Department’s release this week of the advance reading for fourth quarter gross domestic product, which was delayed by the government shutdown. Economists surveyed by Bloomberg projected as of Friday that growth cooled to a 2.5 per cent annualised rate in the final months of 2018 from 3.4 per cent in the third quarter.

NABE members were divided on the impact of the Fed’s balance sheet normalisation process. Asked about the effect of the tightening on short-term funding rates, a fifth said saw no impact, a fifth said it would raise rates by 25 basis points, and a fifth said they would rise 50 basis points or more. The remaining respondents didn’t know or express an opinion.

“There is a schism between what the NABE panel and the markets think about the Fed’s rate path and the shrinking of its balance sheet,” said Megan Greene, chief economist at Manulife Asset Management and chair of the survey. “Markets are pricing in no more interest-rate hikes in 2019, whereas a majority of the NABE panel expects one or two rate hikes.”

A plurality of 23 per cent expected the Fed to raise the main rate 50 basis points to 3 per cent before beginning to cut rates. Eleven per cent said the next rate move will be an easing.

President Donald Trump’s trade policies remained a concern for most of the panellists. Thirty-six per cent said the existing tariffs, if they remain in place, will reduce 2019 gross domestic product growth by 25 basis points, while 26 per cent saw a drag of 50 basis points and 15 per cent of panellists expect the reduction to exceed 50 basis points.

Economists also expected the tariffs to boost inflation this year.

— Bloomberg