Will The Economic Balloon Endure?

According to Bloomberg the likelihood of a U.S. recession in the next 12 months rose to 35% in an August survey of economists, from 31% forecast previously, as global trade tensions fuel economic uncertainty.

Growth in the world’s biggest economy will average 2.3% this year, down from 2.5% seen in a July survey. Gross domestic product expansion is forecast to slow to a 1.8% annualized pace in the third quarter, from 3.1% in the first three months of the year and 2.1% in the second quarter.

“Trade tensions are needlessly roiling financial markets, which could eventually destabilize a stable economy,” Parul Jain, chief investment strategist at Macrofin Analytics LLC in Wayne, New Jersey, said in comments attached to her survey response.

President Donald Trump last week announced new tariffs on imported Chinese goods, to take effect on Sept. 1, causing steep declines in global stock markets. The S&P 500 index of U.S. stocks has fallen more than 3% since July 31. That was the day the Federal Reserve cut interest rates for the first time since 2008, to a range of 2% to 2.25%, in a bid to support the economy.

Economists moved up expectations for the next Fed interest-rate cut to September from December and now see a 25-basis-point reduction in the benchmark rate, to a range of 1.75% to 2%, at the next meeting, according to the poll.

Global growth forecasts for 2019 were also cut, to 3.2% from 3.3%. Bloomberg’s survey was conducted Aug. 2 to Aug. 7.

While this is still far and away better numbers than the country experienced for years after the financial crisis, there is little argument that with increased budget deficits and unfunded liabilities, the cost of servicing the national debt along with a slowdown due to trade talks may expedite any impending slowdown.