Tags: larry summers | recession | chance

Larry Summers: Chance of 2020 Recession Almost 50%

Larry Summers: Chance of 2020 Recession Almost 50%
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By    |   Tuesday, 10 September 2019 05:04 PM

Harvard University economist Lawrence Summers warns that the odds of a recession before 2021 at nearly 50%.

The former Treasury chief also described to the Wall STreet Journal a “black-hole scenario” in which rates could get stuck at zero.

“I haven’t been this alarmed since the financial crisis,” he told WSJ.com.

Concern among Americans about a recession has been rising. Six in 10 saw a recession as either “very likely” or “somewhat likely” in the next year, according to a new Washington Post-ABC News poll.

To be sure, a protracted trade war between China and the United States, the world’s largest economies, and a deteriorating global growth outlook has left investors apprehensive about the end to the longest expansion in American history.

The recent rise in U.S.-China trade war tensions has brought forward the next U.S. recession, according to a majority of economists polled by Reuters who now expect the Federal Reserve to cut rates again in September and once more next year.

Trade tensions have pulled corporate confidence and global growth to multi-year lows and U.S. President Donald Trump’s announcement of more tariffs have raised downside risks significantly, Morgan Stanley analysts said in a recent note.

For his part, Summers said he most fears a “black-hole scenario” where both economic growth and inflation rates could plunge to nearly zero and subsequently stay near rock bottom.

“The experience in Japan, Europe, or even the U.S., is that once you get into a near-zero interest-rate regime, it’s kind of a black hole. The economy tends to be pulled in, and once there, it’s difficult to escape. Japan is unable to, and it doesn’t look like Europe will," Summers said.

"The U.S. did escape, but it looks like we’re being pulled back in. We’re only one recession away from ‘Japanification.’ In the black hole, weak economic growth and low inflation lead to low interest rates, and falling confidence makes it hard to escape low rates,” Summers said.

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Harvard University economist Lawrence Summers warns that the odds of a recession before 2021 at nearly 50%.
larry summers, recession, chance
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2019-04-10
Tuesday, 10 September 2019 05:04 PM
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