Here’s How CEOs from PayPal and Nasdaq, Plus a Senator, View the Risk of Recession
May 23, 2022
It seems like everybody is talking about a recession this week at the World Economic Forum. What are the chances of a recession coming, whether in the United States, Europe, or around the world and when will it take place?
Finance CEOs and a senator were among the latest to address the problem during Monday's discussion on the US economic prospects.
Because of the uncertainty surrounding inflation at multi-decade highs, the conflict in Europe, and global disruptions caused by China's attempts to combat COVID, their guidance was cautious for the near future.
Prof. Jason Furman, an economist at the John F. Kennedy School of Government at Harvard University, led the discussion.
He believes that there is only a small chance this inflation will be transitory and that it will decrease this year. The Federal Reserve will use the inflation rate as a key indicator as it moves aggressively to tighten monetary policy in the months ahead. In the end, the pace of an interest rate rise will heavily influence the amount of contraction in economic demand and the probability of a recession.
"I set my basic forecast for next year's recession at 15%," Furman said. "That's just how the economy works," he added. "My current rating is slightly higher than 15%, but not significantly."
"There are positive signs for the market on a one-year horizon," the professor added. "I get more concerned one to two years from now when I believe the Fed will raise interest rates above 3%, perhaps to 4% or 5%."
According to Senator Pat Toomey, he is more concerned about the economy in the short term than Furman is and that markets are a good indicator of where the economy is heading.
"I think the market will play an important role: the boost in yields, the strength of the dollar… we're already witnessing some demand destruction, and the margins of big retailers are already starting to compress," Toomey noted.
"It wouldn't surprise me if the economy slows down even more this year," the senator said. "But in the longer run, I'm optimistic."
According to Nasdaq CEO Adena Friedman, "the markets are indicating that a recession is not zero risk."
"The Fed is actually trying to achieve some slowdown in economic growth," she said. "It is uncertain, however, whether the process reaches a tipping point."
Consumer confidence is what most concerns the exchange chief. Market turbulence and declining confidence could raise savers' anxiety and lead to an increase in selling pressure.
"I think this has the potential to self-fulfill into a recession." That's where Friedman believes the nonzero risk lies. "However, I'm not ready to put a percentage on this risk."
Dan Schulman, PayPal CEO, said he couldn't give any estimates on how likely a downturn in the US is but noted that the probability of one in Europe is higher than in the United States.
"I believe it depends on how long the Ukrainian war lasts, confidence, supply chains, and whether or not the Fed can manage this softer landing," he added.
"We have never seen this level of uncertainty before," said the CEO. "It is highly unlikely that any of us can accurately predict at this point."