While the survey findings didn’t explain why market watchers are increasingly pessimistic about the economy, a number of factors could be at play. For one, with consumer inflation the highest in decades, the Federal Reserve plans to increase its benchmark interest rate at least three times this year to help reduce demand and in turn bring down prices. But some economists say more rate increases may be required, and that might tip the economy into recession. Rising inflation “could prompt them to act much more aggressively than currently forecast,” Diane Swonk, chief economist at Grant Thornton, warned about the Fed in a commentary last month. “The risk is that they panic and raise rates too rapidly as they chase inflation for the first time since the 1980s.” The economic impact of COVID-19 and the omicron variant could also be a factor in the recession risk, though many economists have suggested there shouldn’t be long-term effects. Some lowered their forecasts for growth in gross domestic product in the first quarter—or said in the worst-case scenario, it would lead to a contraction. Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com.
