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Washington Watch: Recession fears stay close to boiling point, MarketWatch weekly gauge shows

Fears of a U.S. recession stayed elevated this week, even as some doubters were caustic about how long some economists have been worried about a severe downturn.

“A recession can’t always be six months away,” said Neil Dutta, head of economic research at Renaissance Macro, referring to the fact that some economists have been anticipating since early 2022.

Dutta said that economists have a tendency of “falling in love” with their forecast, and said “it is clear that some are having trouble letting go.”

Dutta said real incomes are advancing and the drag on housing is fading.

But recession worry warts think the current strength of the economy, despite the Federal Reserve’s five percentage point increase in its policy interest rate in the past year is what has them the most worried.

They think the Fed is going to have to keep tightening monetary policy until there is pain in financial markets and the real economy.

“Maybe the recession is delayed, but I still think it is going to be hard to avoid,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

“The Fed has a propensity to break the economy by raising interest rates until they do so,” he added.

Almost every indicator for the U.S. economy landed on the strong side of expectations this week, noted Sal Guatieri, senior economist at BMO Capital Markets, in a note to clients.

This seemed to encourage Fed Chairman Jerome Powell during his European tour that two more rate hikes are coming.

“If you believe the full effects of higher rates are still to come, you can’t rule out aharder landing for the economy. We still look for a mild slump, though the timingremains in doubt given ongoing support from several buffers. For now, we’ll stick with the second half of the year as a placeholder,” Guatieri added, in a note to clients.

See also: U.S. economy on track to grow as fast as 2% in the second quarter

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