Tags: recession | Vincent Reinhart | Federal Reserve | debt crisis

Reinhart: 40% Chance of New U.S. Recession

Friday, 26 Aug 2011 09:20 AM

The U.S. stands a "four in ten" chance of dipping back into recession, since recovery is threatening to stall and become unsustainable to remain on the path to growth, says Vincent Reinhart, a former director of the Federal Reserve Board’s Division of Monetary Affairs and resident scholar at the American Enterprise Institute for Public Policy Research.

"An economy expanding at a subpar rate is less resilient in the face of adverse shocks. That is, the country's economy is a plane flying slowly and close to the ground. This combination makes wind shear and pilot error more consequential," Reinhart writes in an AEI paper.

The debt crisis in Europe is threatening to push the economy closer to the edge of recession.

Meanwhile, banks are not lending that much in the United States, the country still remains scarred from the debt-ceiling impasse, housing prices are sagging and more political battles will arise over fiscal spending.

Policy makers haven't prepared for this type of recovery, Reinhart says. "The risk is that the foundation for sustained expansion after that pain has not been set."

Banks across the globe have been cutting growth forecasts for this year and next, but many stop short of making outright predictions for recessions.

Economists at UBS are calling for 3.3 percent global gross domestic product growth in 2012, down from their earlier estimate of 3.8 percent, while Citigroup experts cut their forecast for next year to 3.2 percent from 3.7 percent, Citywire, a U.K. financial publishing group, reports.

"Overall GDP growth in the major advanced economies already has been below average for three quarters, and growth is likely to remain sluggish in coming quarters," Citi economists write in a research note, Citywire adds.

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The U.S. stands a four in ten chance of dipping back into recession, since recovery is threatening to stall and become unsustainable to remain on the path to growth, says Vincent Reinhart, a former director of the Federal Reserve Board s Division of Monetary Affairs and...
recession,Vincent Reinhart,Federal Reserve,debt crisis
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2011-20-26
Friday, 26 Aug 2011 09:20 AM
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