'Significant' Chance of Recession Next 2 Years: SF Fed

FEDERAL RESERVE, RECESSION, ECONOMY,

Reuters

| 09 Aug 2010 | 04:50 PM ET

There is a "significant" chance the U.S. economy will slip back into recession in the next two years although a reversal is unlikely in the next few months, researchers at the San Francisco Federal Reserve Bank said on Monday.

The probability of another recession over the next 18 to 24 months is higher than that of expansion, researchers said in the latest issue of the regional Fed bank's Economic Letter.

Concern has risen in recent months that the United States might be headed for a 'double-dip' recession as measures of consumer spending and confidence have dropped and private company hiring has fallen short of expectations.

The soft economic data will be top of mind tomorrow when members of the Fed's monetary policy-setting committee meet. Recent comments from Fed officials signal strong disagreement over whether the Fed — the U.S. central bank — should move to offer further support to the economy than it already has.

The researchers — Travis Berge, a graduate student at the University of California, Davis, and Oscar Jorda, a professor there as well as a visiting scholar at the San Francisco Fed — used leading economic indicators to try to predict the possibility of a renewed economic downturn.

The experiment yielded vastly different results, depending on which indicators were used. But overall, they said, the numbers "indicate that the macroeconomic outlook is likely to deteriorate progressively starting sometime next summer."

"Of course, economic policy can strongly influence the outcome," the researchers said. "The policies that are adopted today could play a decisive role in shaping the pace of growth."

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