Global Rating Agency Sees 40% Recession Risk in US Economy

According to S&P Global Ratings, the US economy’s growth forecast for 2023 is lowered to 1.6%, from 2%, amid the Federal Reserve’s monetary tightening, higher unemployment risks and recession fears.

“The Fed will keep monetary policy tight until inflation decelerates and nears its target in second-quarter 2024,” the global rating agency said in a report on Monday.

The agency said it expects the federal funds rate to reach the range of 3.5%-3.75% by the middle of next year, and warned about a recession in the world’s biggest economy, noting “chances of a contraction are rising.”

Meanwhile, the S&P kept its growth estimate for the American economy unchanged at 2.4% for this year.

“We assess recession risk at 40%, reflecting a larger spike in prices with even more aggressive Fed policy heading into 2023,” the rating agency said.

“As inflation expectations become more entrenched, extreme price pressures will likely last well into 2023.”

“Supply chain disruptions, Russia’s war on Ukraine and a slowdown in China are all hurdles for the American economy,” it elaborated.

“The unemployment rate in the US, which stood at 3.6% in May, is expected to exceed 4.3% by the end of 2023, and then climb over 5% by the end of 2025, as economic pressures deteriorate and the Fed raises rates,” it added.

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