Some Are Saying the Recession Is Already Here

Forget the soft landing. The economy may already be in a tailspin.

That’s what some Wall Street economists are saying after the Federal Reserve Board raised interest rates steadily last year in a bid to slow the high-flying economy and prevent a burst of inflation.

The central bank’s tight monetary policy has pushed the economy from last year’s boom to near-bust this year, according to the economists, some of whom say there is a good chance the country has already entered another recession.

“What we’re seeing here is a very broad-based deterioration in economic activity,” said Lacy Hunt, chief economist at HSBC Markets.

“We have a very significant deterioration on our hands,” he said. “I think things are very precarious.”

Hunt and others, such as Philip Braverman, vice president and senior economist at DKB Securities, are among those who say there is at least a 50% chance a recession is already here.

And they say the Fed’s seven interest rate hikes last year and in early 1995 are largely responsible.

But some forecasters are hedging their bets, saying it is too soon to say exactly where things are headed as long as the stock market continues to weather the recent storm of gloomy economy data.

The data includes last week’s report of a sharp drop in payroll jobs in May and of a third straight drop in the government’s main economic forecasting gauge. Three straight drops in the gauge are widely seen as signaling recession.

The economy could still turn around in the third quarter, some analysts say, and the slowdown that fueled the sharp drop in long-term interest rates will be viewed as little more than a premature case of “summer doldrums” by the end of the year.

“I’m expecting that we’re going to get a very sharp rebound . . . with the economy accelerating very rapidly as we go into the end of the year,” said Gail Fosler, chief economist at the Conference Board, a business research group.

Fed rate hikes have slowed the economy from last year’s torrid rate of growth to about 2.5% in the second quarter, consistent with the “soft-landing” the Fed has tried to engineer, Fosler said.

She sees growth picking up to about 4% in the third quarter, fueled partly by the weak dollar and rising exports.