Recession odds fall despite Iran war, but inflation outlook worsens: WSJ survey

More economists now believe the US economy is unlikely to fall into recession even as the war with Iran continues. While recession odds have declined, the conflict is expected to prolong inflation and push price increases higher than previously forecast.

The Wall Street Journal surveyed 72 economists from July 2 to July 7 and found that the average probability of the US entering a recession within the next 12 months stood at 25%, the newspaper reported Sunday. That is down 8 percentage points from 33% in an April survey and marks the lowest reading since early last year, the WSJ said.

Economists projected average US economic growth of 2.1% this year, edging up from the 2.0% forecast in the April survey. They also said the US economy had not suffered serious damage from the oil price surge and energy supply chain disruptions caused by the Iran war.

Inflation, however, is expected to remain higher than previously anticipated. The US Consumer Price Index is forecast to rise 3.4% year-on-year by the end of this year, up from the 3.2% projected in the April survey, with the war pushing the estimate higher.

The core Personal Consumption Expenditures price index — the Federal Reserve's preferred inflation gauge for setting monetary policy — is projected to rise 3.2%, up from the 2.9% forecast in April.

Persistently above-target inflation — which has continued to exceed the Fed's 2% goal — is emerging as the biggest challenge facing new Fed Chair Kevin Warsh, who took office in May. Even so, only 15% of surveyed economists said the Fed was likely to raise interest rates. Most respondents said the Fed would hold its current rate of 3.50 to 3.75 percent through the end of the year.