Musk, Roubini and Goldman warn of rising US recession risk

HONG KONG (BLOOMBERG) - Elon Musk, Nouriel Roubini and Goldman Sachs have warned of a growing likelihood that the US economy will fall into recession.

Their outlooks will stoke fears of a hard landing for the world’s biggest economy as the Federal Reserve jacks up interest rates to counter the fastest pace of inflation in decades. 

Tesla chief executive Mr Musk said on Tuesday (June 21) that a recession in the United States looks likely in the near future.

“A recession is inevitable at some point. As to whether there is a recession in the near term, that is more likely than not,” Mr Musk said in an interview with Bloomberg News editor-in-chief John Micklethwait at the Qatar Economic Forum in Doha. 

“It is not a certainty, but it appears more likely than not,” Mr Musk said.

The world’s richest person told Tesla executives earlier this month that he had a “super bad feeling” about the economy, according to an internal email seen by Reuters.

Goldman Sachs economists cut their US growth forecasts and warned in a research note on Monday that the risk of recession is rising. 

The Goldman team sees a 30 per cent chance of the US entering a recession over the next year, up from 15 per cent previously, and a 25 per cent conditional probability of entering a recession in the second year if one is avoided in the first.

“The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” economists led by Jan Hatzius wrote.

Mr Roubini, an economist famous for predicting the global financial crisis, said he expects a US recession by the end of the year. Measures of consumer confidence, retail sales, manufacturing activity and housing are all slowing sharply while inflation is high, Mr Roubini said on Bloomberg Television.

“We’re getting very close,” he said.

Seeking to quell a surge in living costs, the Fed accelerated its monetary-tightening campaign last week with its biggest interest-rate increase since 1994. That drove fresh losses on Wall Street and has increased the odds of a recession, piling pressure on President Joe Biden. 

Mr Biden reiterated Monday that a US recession isn’t “inevitable” following a conversation with former Treasury Secretary Larry Summers, who sees a significant chance the country will find itself battling stagflation.