NEWARK — As inflation remains sticky and uncertainty clouds the nation’s economy, forecasters are divided between optimism and apprehension of the reality that a recession may come in 2025. While Moody’s Analytics Deputy Chief Economist Cristian deRitis and wealth manager Michael Farr warned of a trade war and inflation driving prices even higher during the
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The Federal Reserve Bank of Philadelphia President and CEO Patrick Harker spoke at the Lyons Economic Forecast at the end of February. He will step down from his post in June. | DBT PHOTO BY KATIE TABELING[/caption]
What did concern Harker was the consumer spending which matched against the credit card balances. Data from the Philadelphia Fed shows that more than one in 20 credit card accounts are currently maintained by making the minimum monthly payment. Credit card debt hit $1.2 trillion at the end of last year.
“That is not necessarily a flashing red light to me, but a yellow one,” he said. “The data clearly tell us that many consumers are under stress in managing their finances in the midst of higher-than-target inflation. So, this is a space worth keeping an eye on, and I will. Closely.”
Farr, who had warned in the past about high chances for recession in the last four years, said that the news about tariffs has sent a chill in the market. He was also uncertain that President Donald Trump’s policies would quell the threat of a recession – something the president himself indicated last week.
“President Trump said the American people understand we have to fight back on China, and we have to do these tariffs and they are ready to have a certain period of pain to deal with these unfair policies that have gone on for a while,” Farr said. “Ladies and gentlemen, I’m not sure at all that the Americans are actually ready to deal with the pain in the wallet. It’s a great notion until you have to pay another $100 at the grocery store.”
Right now, there’s a sharp disparity between household incomes, risking accelerating concerns for a recession. Moody’s, a top financial services company, has found that shelter costs have proven to be one of the more persistent drivers with inflation – their models show that if rent and mortgage costs were removed from the picture, inflation would be at the 2% target the Fed seeks.
Surveys among households, businesses and small businesses all report a greater feeling of uncertainty with the labor market and federal policy which deRitis warned could cause a sharp consumer pullback.
“The uncertainty itself can become a risk factor when it comes to the economy, and understanding that businesses take a wait-and-see approach on investment can already lead to slower growth and potentially that recession if the spending pullback is that dramatic,” he said.