The economy right now is the Fed's 'worst nightmare' and there's a 50% chance of a global recession, Citi economist says

  • “The recent economic data has been the central bank’s worst nightmare,” Citi’s chief economist said. 
  • He says it’ll be hard for the Fed to fix low global demand and high inflation at the same time.
  • Citi economist peg the odds of a global recession at 50%.

The economic outlook isn’t great, and the odds of a global recession hitting are about 50%, according to Citigroup’s team of economists.

“I would say the recent economic data has been the central bank’s worst nightmare,” Citi’s global chief economist Nathan Sheets said in an interview on Yahoo Finance, noting that the Federal Reserve is dealing with pressure on two sides – on the one hand, demand is slowing across the globe, while on the other hand, inflation is proving to be persistent. 

“It’s really hard for central banks to fight that,” Sheets said. “I’m cautious to use the word, but it feels at the moment that we’re going through a period … [of] transitory stagflation.”

The prospect that high inflation and low growth will be here to stay has been an increasing concern for the Fed, driving two jumbo sized rate hikes in June and July. 

Although stocks rallied after last week’s policy move, experts have been less optimistic that inflation will come down quickly after soaring to 9.1% in June’s Consumer Price Index reading. Some top economists, including Nouriel Roubini, who called the 2008 financial crisis, predict that the Fed will have to choose between tolerating high inflation or sending the economy into a recession from hiking rates too fast.

Sheets predicted the US was likely to fall into a recession in the second half of 2023, and Europe was in for a downturn even sooner, likely by year-end or in early 2023.

A global recession was also on his radar: Citigroup’s team of economists called a global downturn a “clear and present danger” in a note in mid-July, adding they expected the economy to grow by just 2.9% this year and 2.6% the following year, lower than previous estimates. 

“I think there’s a reasonable chance … that globally we all go down together. And it’s a synchronized downturn,” Sheets said, pegging that possibility at around 50%. 

The International Monetary Fund previously said that global economic outlook remained “gloomy and uncertain,” citing supply-pressures stemming from Russia’s economic war with the West as well as inflationary pressures around the world. 

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