Though the economy has been doing well over the past months,
when asked to asses the odds of a recession in the next year, economists have
placed the odds at about one in five.
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| The graph above shows the average probability of the U.S. economy entering recession in the coming year. |
Why so high? Many
are very unsure about how the upcoming election will affect the economy. Forecasters
must assess the policies projected by the candidates, but also keep in mind the
potential for a divided Congress that could stymie either candidate. Although
this election in particular is concerning to economists, the issue is not
limited to just this election.
There is an unusual
tendency of recession to happen in close proximity to presidential elections.
According to Kevin Hassett and Joseph Sullivan, the U.S. enters recessions
about twice as frequently in the year after a presidential election compared
with all other years. The National Bureau of Economic Research estimated that
41% of (or five of the last 11) recessions since 1854, have fallen in that time
window. This is the cause of most of the uncertainty for the upcoming election.
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| The graph above shows the election risks, predicted by economists, on the economy for this upcoming election. |
Overall, no one
really knows what is going to happen. History could repeat itself, or the
economy could stay perfectly fine; however, the reason behind this elections
uncertainty is reasonable.
To read more on the upcoming
recession risks click here.
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ReplyDeleteYour last graph is absolutely unsettling. There is history to back up that elections effect markets conversely around election time (i.e. the Eisenhower and Reagan elections stated in your article). How would the election of Trump effect the greater strength of the U.S. economy? From purely foreign markets view of Trump, I have a feeling it would directly contrast with his campaign slogan of "Making America Great Again."
ReplyDeleteIs interesting how the years after the elections are more likely to have recessions, one of the reasons for this could be the way the Fed behaves close to the elections. Since there are elections this year the next year should be considered as a year with higher risk for a recession than other years, but this could be explained because the Fed starts doing things differently when it is close to the elections. One example is since the Fed doesn't want to make many changes to alter the economy, the haven't increased the interest rate, and is is very likely that they don't make any change to it in the meeting that the Fed is having in a few days. The Fed has been saying that they are going to increase the rate, but maybe because of things like fear for a recession they won't change this and wait until after the elections to make any changes and that could have a very big impact on the economy.
ReplyDelete