'The odds of recession might be rising'—Fed insiders sound the alarm on impending economic crisis

The Fed's officials have reached a consensus on rate cuts, but experts think it's too little, too late
By Sam Bourgi
•
09 September 2024
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Chicago Fed President Austan Goolsbee believes that it's not inflation but rather a possibility of an abrupt recession that should keep central bankers up at night.

In an interview with CNBC, Goolsbee said that delaying imminent rate cuts poses a risk of recession. In his view, the Fed’s priority moving forward should be "not letting things turn into something worse."

He referred to the recent slowdown in the labor market, which has raised red flags about the economy’s health and the Fed’s ability to engineer a “soft landing.”

Goolsbee said the central bank has made significant progress on inflation but acknowledged that the “job market is slowing down.” “Do you want to tighten when the job market is cooling that much?” he asked.

“I am concerned if we maintain this level of restrictiveness, the odds of recession might be rising,” said Goolsbee.

Goolsbee and other central bankers have finally agreed with the market that it's time to cut interest rates. The question now is whether it will be enough to revive the economy.

Markets on edge as recession fears reemerge

In what was supposed to be a positive week—when Fed officials reached a consensus about rate cuts—the stock market crashed to its worst five-day stretch of the year.

For the week, the S&P 500 declined 4%, the Dow Jones Industrial Average fell 3%, and the technology-focused Nasdaq closed 6% lower. For the Dow and S&P 500, it was the worst week since March 2023.

One reason behind the rout is investors' growing fears over the U.S. economic outlook. According to Lombard Odier’s head of macro, Florian Ielpo, investors’ uncertainty has shifted from inflation to “how deep will the slowdown be.”

Last month, analysts at JPMorgan raised the probability of a recession in 2024 to 35% from 25% previously. However, the investment bank said the odds of a recession next year are 45%.

Other analysts see the possibility of a “shallow recession” at the end of the year.

“The economy’s slowing, it’s not falling off a cliff,” said Tim Urbanowicz, the head of research and investment strategy at Innovator ETFs. “If we see a recession, which is likely, it’s probably going to be pretty shallow.”

One of the trickiest things about recessions is that they’re usually not obvious until the economy is already in one. As Creditnews reported, recessions are often “backdated” by multiple revisions to economic data.

The most famous example of this occurred in 2009, when the government determined that the country had been in a recession since December 2007—one that lasted for 18 months.

As economist Peter Schiff quipped, “We were almost out of the recession by the time the government told us we were in it.”

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