- Market analyst Ed Yardeni increased the odds of a recession from 15% to 25% by next year's end.
- Rising oil prices motivated the adjusted outlook, as they could pressure inflation higher.
Market analyst Ed Yardeni raised the odds of a recession before the end of 2024, citing higher oil prices and widening deficits.
In July, Yardeni had lowered the likelihood of a recession, but the 30% spike in oil since late June has given him reason to reassess.
"Today, in response to several new developments, we are raising the odds of a recession before the end of next year from 15% to 25%," he wrote in a Monday note.
Oil's meteoric rise this summer follows as OPEC's crude production cuts have started to $4, which are falling behind demand.
If high oil prices set off a wage-price spiral and higher inflationary expectations, that would be reminiscent of the 1970s, Yardeni noted, when similar conditions paved the way for a recessionary crisis.
But there are key differences that won't result in a repeat of that decade, he explained, particularly the disinflationary tech-driven productivity boom expected this decade.
Unlike the 1970s, compensation inflation is moderating today, and Yardeni estimated productivity growth to reach 4% by this decade's end. That's as a technology boom will make nearly every economic sector more efficient.
"So we don't expect to see a second peak for inflation that would force the Fed to cause a recession to bring inflation down," he wrote.
And while oil prices spiked by triple digits during the 1970s, they were fueled by a weak dollar. Today, the currency remains strong, blunting a more dramatic rise in crude pricing.
Still, Yardeni's concern over oil prices extends to other analysts. On Monday, top economist Nouriel Roubini $4 for global growth.
Other potential headwinds cited by Yardeni include the $4, as well as the United Auto Workers strike and a potential government shutdown.