Economist forecasts recession by year’s end

LA QUINTA, CALIF. — A dogged determination by the Federal Reserve to increase interest rates in an effort to reduce stubborn inflation was just one indication that a recession would likely occur by the end of this year, said Scott Colbert, executive vice president, chief economist and director of fixed income at The Commerce Trust Co.

“We weren’t even close to being in a recession last year,” Mr. Colbert told attendees Feb. 28 at the 2023 International Sweetener Colloquium in La Quinta. But influxes of government spending and a workforce that failed to recover to pre-pandemic levels have fueled both the growth of inflation as well as its “sticky” factor, making it resistant to monetary policies’ impact to pull it down.

Mr. Colbert countered the pessimistic outlook by offering perspectives from previous recession periods, saying downturns are typically followed by a healthy bounce, but the process takes time.

“It’s like no one paid attention,” Mr. Colbert said. “When inflation peaked in 1980, it took 26 years to get it back down, and it took at least three years for the economy to improve after the subprime crisis.”

But recovery effects that healed these recessions are less unlikely to stem off the presently looming one, Mr. Colbert said. Outsourcing labor to foreign countries and harsh monetary policies from a sterner federal reserve helped lift the economy out of its 1980s recession. But today’s federal reserve seems determined to incrementally chip away inflation by employing comparatively modest monetary policies. And, with swarming geopolitical tensions from the Russia-Ukraine conflict and a growing mistrust of the Chinese government, corporations are wanting to bring supply lines closer to home, which has led to a hiring boom in the United States, bringing unemployment to its lowest rate since 1968. The robust strength in the labor market likely was keeping the pending recession at bay for now.    

“Last year we added almost 3% more jobs and, on average, wages and salaries grew 6%, and you can’t have a recession when there’s 9% more cash flowing into the economy, but you will get a recession if you start firing people” Mr. Colbert said.