Concerns about a global growth slowdown are weighing on the Federal Reserve. In comments earlier this week at a Federal Reserve Bank of Dallas event, Fed vice chairman Richard Clarida said the global economic slowdown was a big factor behind the central bank’s decision to slow its planned interest rate hikes. “The reality is that the global economy is slowing. You’ve got negative growth in Italy, Germany may just grow … 1 percent this year, [and] a slowdown in China. These are all things that we need to factor in.”
Clarida described the global economy as more “fragile” but said the U.S. economy, “is in a good place right now.” He added, “It’s a good situation to be in, and we really want to do whatever we can to help support and maintain the economy.”
Not a single CFO expects the Fed to cut interest rates in 2019, but only 17 percent think the Fed will raise rates as many as two times. Forty-six percent of CFOs anticipate one rate hike, while 30 percent expect not rate hikes or cuts.
Federal Reserve chairman Jerome Powell said on Tuesday in semiannual testimony before the U.S. Senate, “while we view the current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals. … financial conditions are now less supportive of growth than they were earlier last year.” Powell also expressed concerns about China and Europe. “We will carefully monitor these issues as they evolve,” he told senators.
Influential hedge fund billionaire Ray Dalio of Bridgewater Associates lowered his own analysis of recession odds on Thursday, based on the Fed’s recent shift to a more patient position. “While I still expect that there will be a significant slowing of growth in the US and most other countries, I have lowered my odds of a US recession coming prior to the US presidential election to about 35 percent,” he wrote on Thursday in a blog post on LinkedIn. On Jan. 22, Dalio told CNBC from the World Economic Forum in Davos, Switzerland that he saw a “significant risk” of a recession before 2020.
The Fed conducts its own market research into recession probability and prior to the January 2019 FOMC meeting, the New York Fed asked market participants to rate the chance that the economy was already in a recession and what percent chance they attach to the U.S. economy being in an recession in six months. The median respondent assigned a 2 percent probability to the U.S. currently being in a recession and a 12 percent probability to the U.S. being in a recession in six months, according to a presentation made by New York Fed executive vice president Simon Potter on Feb. 22.
The Fed also asked respondents when they think it is most likely a recession occurs — they placed the highest probability on a U.S. recession first occurring in 2020 or 2021, assigning a roughly 25 percent probability to each, on average. These respondents placed the average change of a recession in 2019 at 17 percent.
Full results of the Q1 CNBC Global CFO Council Survey are below:
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