US recession odds are 'extremely elevated' and a downturn is likely to hit within the next year, chief economist says

US recession odds are 'extremely elevated' and a downturn is likely to hit within the next year, chief economist says
Traders gather on the floor of the New York Stock Exchange, Friday, March 18, 2016.Associated Press/Richard Drew
  • Vincent Reinhart, the chief economist of Dreyfus Mellon, is expecting a recession to hit within the next 12 months.
  • "There is an extremely elevated chance of recession," he told Bloomberg on Thursday.

The chief economist of Dreyfus Mellon is expecting the US economy to face a downturn within the next year even though inflation has come down from its peak.

"There is an extremely elevated chance of recession, and if you had to place your money, I'd bet within 12 months the economy is in a downturn," Vincent Reinhart told Bloomberg Surveillance on Thursday.

The central bank remains locked in its battle to tame inflation, which came in below expectations at 7.7% for October. It has shown signs of easing but remains well above the Fed's goal of 2%.

Reinhart said policymakers' current strategy is old-fashioned, and hard but simple.

"It's hard in a sense that they have to put pain on the economy to get inflation down," he said. "It's simple because the strategy is if you don't know what the right neutral funds rate is, put it at a level you're sure is restrictive, and then keep it there until you have demonstrable evidence that inflation is going back to goal."


The economist added that the Fed shouldn't try to speculate at what level to put the Federal Funds Rate if they aren't sure where it should go. He recommended they put it at a plateau next year and wait and see how the economy responds.

In Wednesday comments at the Brookings Institution, Fed Chair Jerome Powell said it's unclear how long it will take inflation to subside, which means interest rates could remain high for "some time." Still, he suggested that dialing back the size of rate hikes could happen as soon as the December meeting.

"History cautions strongly against prematurely loosening policy," Powell said. "We will stay the course until the job is done."

Meanwhile, Reinhart's recession forecast comes alongside his call that inflation has already peaked. There's still work to be done, however.

"Goods price inflation has come off the boil because supply chains have been improving, and market economies work by bringing resources into sectors that are overheated," he said. "But it's spillover to service inflation, that's what you've got to worry about, that's what Powell's worried about. The durable part of inflation that's still above the Fed's goal."