Noble prize-winning economist Robert Shiller said this week that he sees a “good chance” that the US economy will sink into a recession – a warning that came in advance of May Consumer Price Index data that is expected to show another month of persistently high inflation.
Shiller, a Yale University professor, said fears among investors and institutions that the economy is on the brink of a downturn could become a “self-fulfilling prophecy.”
“The fear can lead to the actuality,” Shiller told Bloomberg in an interview published Wednesday. He placed the odds of a recession within the next couple of years at a “much higher than normal” 50%, according to the outlet.
Stocks have been under pressure for weeks in a sign that investors are skeptical that the Federal Reserve can engineer a so-called “soft landing” for the economy. The central bank is attempting to cool rampant recession by hiking interest rates without triggering a recession.
Shiller warned that inflation is a major drain on the confidence of American consumers.
“Inflation affects everyone,” he added. “Every time they go to the store they see inflation and it makes them angry.”
Shiller is the latest prominent voice to caution that the economy was at risk of a downturn after a rapid recovery from the COVID-19 pandemic.
JPMorgan Chase CEO Jamie Dimon recently warned that investors faced a possible “hurricane” due to the dual obstacles of the Fed’s move to hike rates and the impact of the Russia-Ukraine war.
And last month, fellow famed economist Mohamed El-Erian said the rise of “stagflation,” a term used to define periods where economic growth slows while inflation remains stubbornly high, was now “unavoidable.”
The Labor Department’s release of the latest Consumer Price Index data on Friday will provide the latest indication of whether the Fed’s effort to cool inflation is having an effect.
Economists expect inflation to rise 8.2% in May compared to the same month one year earlier – a number that would mark a slight downtick from April’s 8.3% but still near the highest level in four decades.
President Biden has faced intense criticism over inflation in recent days – with critics arguing his economic policies have contributed to record gas prices and steep costs at grocery stores.
White House Press Secretary Karine Jean-Pierre acknowledged at a briefing Thursday that the administration expects May’s CPI data to show “elevated” inflation.
“We expect the headline inflation number to be elevated. And we expect the war in Ukraine to have some effects on core inflation, particularly when you look at things like airfares and the effect of higher jet fuel costs,” Jean-Pierre said.