One of the survey questions concerns the probability of negative quarter-over-quarter growth in the current and the following four quarters[1]. Charts 2 to 6 show the evolution of these probabilities in the early stages of each rate hike cycle since 1994[2]. In general, the probability of a recession increases as the projection horizon lengthens and as the tightening cycle progresses: the risk of a recession in the near-term is higher when rates have already been increased more than once. Against this background, the recent developments are striking. Recession probabilities across the projection horizon have moved higher and for the latest observation, which concerns the survey released in May, they are well above what we have seen in the past at this stage of the tightening cycle[3].
This probably reflects a combination of two things. The first is the narrative that ‘soft landings’ are hard to achieve: in recent decades, tightening cycles have most of the time been followed by a recession.[4] This doesn’t mean that higher official interest rates were the only cause of the contraction of activity, but they certainly did play a role. The second is that at the current juncture, inflation is exceptionally high, which would require more aggressive rate hikes to bring it back under control. This makes the balancing act of the Federal Reserve even more difficult than normally is the case and explains the heightened concerns about recession risk.
At the current juncture, inflation is exceptionally high, which requires more aggressive rate hikes to bring it back under control. This makes the balancing act of the Federal Reserve even more difficult than normally is the case and explains the heightened concerns about recession risk.
US RECESSION PROBABILITY* 
