Economists Warn Of Recession, Obama Pushes Tax Hikes

Posted by Brian Patrick on

FYI –  

Over the next year, economists say the U.S. faces a 33% chance of slipping back into a recession, and that job growth will barely keep up with population growth. Despite this bleak outlook, President Obama has decided to double down and push for tax increases on working families and the small businesses we’re counting on to create jobs. At the same time, he has proposed dramatically decreasing the amount of money going to soup kitchens and other charities that provide critical services. It’s no wonder the President is facing bipartisan opposition to his plan on Capitol Hill.

Flashback: President Obama August 2009: “… you don't raise taxes in a recession.” (President Barack Obama, 8/5/09)

  • Economists see a one in three chance the U.S. will slip into recession over the next twelve months and doubt any steps the Federal Reserve might take at its meeting next week can change that. Those are the highest odds for a new downturn that the economists in The Wall Street Journal survey have given since the start of the recovery—and up four percentage points from last month's poll.

Economists Raise Recession Odds, Doubt Fed Can Help
The Wall Street Journal
Phil Izzo
September 15, 2011

Those are the highest odds for a new downturn that the economists in The Wall Street Journal survey have given since the start of the recovery—and up four percentage points from last month's poll. Economic strains have escalated amid market turmoil, the stumbling job market and concern about European stability.


"It feels like a recessionary environment. What they call it later on I can't tell you," says Bart van Ark, chief economist of the Conference Board, who put the odds of recession at 45%. Since 1988, every time the Conference Board's estimate of the probability of recession topped 40%, a downturn followed shortly thereafter. "The consumer has never really thought that we got out of the recession," he adds.

The weak outlook has kindled concern at the Fed. After last month's meeting of the rate-setting Federal Open Market Committee, the central bank said it would hold rates near zero through mid-2013. The 53 economists in the Journal's poll—not all of whom answer every question—expect the Fed to take more action next week, but doubt any likely moves will spur growth.

"For sure, the Fed will make one or more non-standard policy thrusts to shore up the beleaguered economy," says economist Allen Sinai of Decision Economics.

In the Journal survey, economists weighed several options for the central bank and on average put the highest likelihood—64%—that the Fed will implement a program known as Operation Twist. Under the initiative, the Fed would exchange shorter-dated Treasurys on its balance sheet for longer-dated bonds in a bid to push down long-term interest rates. They put 1-in-3 odds that the Fed will cut the interest rate it pays banks on excess reserves—or dispense with it altogether. Such a step could encourage banks to lend. Other options, such as setting a more explicit inflation or unemployment rate target or making another round of asset purchases each were given a less than a 1-in-4 chance.

The majority of economists said all three steps—launching Operation Twist, altering interest on reserves or setting more explicit targets—would have little to no effect. Twenty-two of the 50 economists who responded to the question said more asset purchases would have somewhat or a significant impact on the economy, but 19 said the effect would be small and nine said it would be negative.

"All the major cards have been dealt. The monetary actions will only have marginal effects on the economy," says Song Won Sohn of California State University.

In line with this gloomy outlook, the economists lowered their growth forecasts for the rest of 2011 and 2012. They now expect gross domestic product to expand less than 2.5% at a seasonally adjusted annual rate for the rest of this year and for all of next—down from estimates near 3% just two months ago. As a result, they expect the economy to add just 125,000 jobs a month over the next year, barely enough to keep up with population growth. Last month they estimated the economy would create about 148,000 jobs a month.

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