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Chance of a US recession up: Reuters poll

There is a one-in-four chance of a US recession in the next 12 months, a scenario that should keep the Federal Reserve from raising interest rates next month, according to a Reuters poll of economists who now expect only one rate hike this year.

Given a global economic slowdown and a dimming outlook for US growth, economists said the Fed’s tightening cycle will likely draw to a halt before July.

While financial markets have recovered from a deep sell-off late last year, the Feb 8-14 poll of over 110 economists showed a cut to the outlook for US economic growth and the number of Fed rate hikes this year and next.

“There is a lot of uncertainty and there are some good reasons to forecast a slowdown in 2019 as compared to in 2018,” said Jim O’Sullivan, chief US economist at High Frequency Economics.

“It certainly does makes sense for the Fed to take a pause on policy to see how things play out, because it is not impossible for the economy to slow down in 2019 between weakening global growth, tighter financial conditions and fading fiscal stimulus.”

US economic growth was forecast to slow and average 2.4 percent this year, a downgrade from January and the lowest since April last year.

On Wednesday, US President Donald Trump said trade talks with China were “going along very well” as the world’s two biggest economies try to resolve their tariff war ahead of a March 1 deadline.

Reuters polls in recent months have repeatedly highlighted the US-China trade war as the prominent downside risk for the American economy.

Over half the economists who answered an extra question warned any further escalation in the trade war would bring the next US recession.

That compared to about 60 percent of economists in a July 2018 poll who said the trade war did not pose a significant risk.

The median probability of a recession in the next year rose to 25 percent from 20 percent in January. It held at 40 percent over the next two years, although the most pessimistic call was 75 percent.

Expectations for Fed’s preferred inflation gauge were also slightly lowered from last month.

(Source: Reuters)

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