The chance of a recession is going up 'by the day' and a soft landing by the Fed is unlikely, says Wells Fargo's head of macro strategy

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The chance of a recession is going up 'by the day' and a soft landing by the Fed is unlikely, says Wells Fargo's head of macro strategy
In this May 22, 2020, file photo, a car drives past the Federal Reserve building in Washington.Patrick Semansky/AP Photo
  • There's a 50% chance of recession by 2023, according to Wells Fargo's head of macro strategy, Michael Schumacher.
  • "There's not really a great path for the Fed to try and limit recession risk," he told CNBC on Thursday.
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The odds of a recession are increasing, with the US economy likely to fall into a slump in 2023, according to Wells Fargo head of macro strategy, Michael Schumacher.

In an Thursday interview with CNBC, Schumacher pointed to a range of factors including historic inflation, spiking mortgage rates, commodity prices, the pandemic, and the war in Ukraine that all make the Fed's path forward difficult to navigate.

All of these factors have led Schumacher to forecast a 50% chance of recession by late 2023.

"The idea of having a soft landing was always going to be really challenging, and when you think about the additional complications…it makes it super tough for the Fed to calibrate," Schumacher said.

The strategist also noted the probability of the Fed overshooting with its plans for raising interest rates is also getting higher each day, and that the market is not prepared to handle more aggressive rate hikes.

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"There's not really a great path for the Fed to try and limit recession risk, as far as going big, going early, going 50 basis points in May…I don't know if it really changes the ultimate question of how you calibrate all these issues that are coming together."

Earlier this week, top economist Mohamed El-Erian made similar comments, noting that he anticipates the Federal Reserve will make a policy mistake. The US central bank, El-Erian said, is facing a lose-lose scenario of either high inflation or a recession.

Markets have fluctuated since the Fed first suggested it would hike interest rates, but mixed signals from Fed Chair Jerome Powell as well as the external factors like war in Ukraine are complicating factors for investors.

Even if the Fed moves forward with a 50 basis-point hike in May as it signaled that it might, it wouldn't change the calculus for a coming recession, according to Schumacher.

"Does throwing in a 50 [basis point hike] or two really change the calculation? I think it doesn't."

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