The chance of recession in the next 12 months spiked to its highest level in three years as market participants ratcheted up their worries about global economic weakness, Fed rate hikes, the market sell-off, trade tensions and the government shutdown.
The CNBC Fed Survey, conducted last week while the government was still shut down, saw the probability of a recession in the next 12 months rise to 26 percent, the third straight increase. The probability was last higher at nearly 29 percent in January 2016, following another market sell-off, showing how sensitive the outlook for survey respondents can be to market gyrations.
“When you look at the slide in global growth, it is hard to think that, in a matter of time, the U.S. won’t join the slide,” Kevin Giddis, head of fixed income capital markets at Raymond James Financial, wrote in response to the survey. “This prospect has only been enhanced by a lack of a trade deal, the government shutdown, and a completely inefficient cooperation in Washington.”
Neither the 2016 spike, nor the one that saw the series hit the all-time of 36 percent in 2011, preceded a recession. But the Fed reacted both times to the deterioration in underlying conditions: it launched its third round of quantitative easing in 2012 and delayed rate hikes for a year in 2016.