RECESSION IS COMING! — You read it here first, people. Take it to the bank. The U.S. is headed toward an economic downturn. Because it always is. We have clearly not — as some hoped during recent booms — repealed the business cycle and entered a period of permanent growth. Recessions always arrive. So the question is not whether we are headed toward one. Because, well, duh. The questions are: When will recession hit? What will cause it? And how bad will it be? And while we may not be in one yet (though it's possible we are), I'm sorry to report that the conditions are ripe for a slide in gross domestic product growth that lasts at least two quarters, the technical definition of recession. I say we may already be in one because growth in the first quarter slid 1.5 percent. And analysts are mostly downgrading estimates for the second quarter to close to zero, based on slipping retail sales, plunging consumer and business sentiment and an aggressive Federal Reserve bumping up historically low interest rates to battle runaway inflation of close to 9 percent. The Atlanta Federal Reserve's "GDP Now" model pegs second quarter growth at 0.0 percent. For real. Exactly zero. They probably won't nail it on the head. So the question is whether we'll get just a tiny bit of growth or a small decline. If the latter, well, that's a recession. But probably not one that people will notice very much — some of the recent declines had quirky inventory changes in them that should get reversed. Consumer and business spending (the big drivers of the economy) have held up remarkably well, meaning if we do get a negative second quarter, we should bounce back at least a bit in the second half of the year. The scary bit is really what happens next year and beyond. And economists, politicians, Wall Street traders and pretty much everyone else is growing more concerned that a significant downturn could arrive in 2023. The main reason is obvious: Steady and significant rate hikes from the Fed often trigger at least mild recessions. It's a feature, not a bug. Fed Chair Jerome Powell and his colleagues will never say it out loud. But they'd take a recession rather than allow prices to continue to spin out of control. The intent of hikes, after all, is to slow down consumer and business spending and thus arrest rising prices. And the current Fed has its foot hard on the brakes at the moment, with a second three-quarter-point increase expected next month, followed by half-point increases in September and November, then by another quarter point in December. These would still get the Fed's target rate only into somewhat normal range from effectively below zero. But mere anticipation of the moves has already driven mortgage rates to 6 percent. Interest rates on everything else, from auto loans to credit cards, will likely be headed significantly higher. And this will happen as consumers are already drawing down their significant Covid-era savings to keep up with inflation. Credit card debt is rising, and servicing that debt is growing more expensive. After booming during Covid, Americans' savings rate has taken a major dive. The figure hit just 4.4 percent in April, the lowest since September 2008 during the Great Recession. Big companies like Tesla, Netflix and the trading platform Robinhood have spoken of hiring freezes and potential layoffs. The once-booming cryptocurrency market is a giant mess. JPMorgan Chase CEO Jamie Dimon is talking about a "hurricane" possibly hitting the economy. Oh, and politics won't help . The midterms could very well lead to divided government again in D.C., with Republicans taking at least one chamber on Capitol Hill. If that happens, it could easily take us back to the days of debt ceiling and government shutdown fights that plagued the economy and the Obama administration after the 2010 midterms. Mix it all together — big rate hikes, strapped consumers, freaked-out executives and possibly gridlocked government — and there is potential for a quite significant recession. But on the positive side, unlike the dot-com bust or the end of the housing bubble, there are no immediately blazing sirens suggesting huge structural problems in the economy that could make things terrible for a very long time. "I don't think recession is imminent or the economy is about to fall off a cliff," Rubeela Farooqi, chief U.S. economist at High Frequency Economics, told Nightly. "What our concern is now is that longer-term recession risk is rising very sharply. "A lot depends on how long these high prices last and how much the Fed slams rather than taps on the brakes." Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight's author at bwhite@politico.com or on Twitter at @morningmoneyben.
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