Crude oil prices would need to jump to roughly $138 a barrel amid the war on Iran and stay there for at least a few weeks to put the US at a serious risk of a recession, according to a new survey of economists released Thursday.
Iran’s blockade of the Strait of Hormuz, a vital maritime route for 20% of the world’s oil supply, has caused the largest-ever energy supply disruption – sending Brent crude to $105 a barrel and West Texas Intermediate up to $96 as of Thursday.
As long as the supply shock is temporary, it likely won’t hurt growth or unemployment – but it will probably boost inflation even higher, according to economists surveyed by the Wall Street Journal this week.
Economists see a 32% chance of a recession in the next 12 months – up from 27% in January, according to the survey, which collected answers from 50 economists at Wall Street banks, universities and consulting firms.
As for how high crude oil would need to climb to push odds of a recession above 50%, economists’ answers averaged around $138 a barrel – though their responses ranged from $90 to $200, per the survey.
Oil prices would need to remain at that elevated level for about 14 weeks to raise recession odds above 50%, according to the experts. That’s the average length of time they cited, with the economists giving a wide range of answers — from four to 55 weeks.
Uncertainty about how long the Middle East conflict could last has muddled such projections, with critics saying the Trump administration has given mixed messages on the timeline — prompting pushback from the White House.
Robert Fry, chief economist at Robert Fry Economics, currently sees a 40% chance of a recession, with oil at $125 for eight weeks as the tipping point.
“My forecast is contingent on the assumption that the Strait of Hormuz will be fully open to tanker traffic by mid-April,” he told the Journal.
“If it isn’t, oil prices will go much higher, and I will put a recession in my forecast.”
Economists forecast gross domestic product adjusted for inflation will grow 2.1% in the fourth quarter and the unemployment rate will hit 4.5% in December – roughly the same as their estimates earlier this year.
But their outlook on inflation has soured as they expect the Consumer Price Index to hit 2.9% in December – after earlier this year forecasting a more modest 2.6%.
National average gasoline prices have skyrocketed to $3.88 a gallon amid the Strait of Hormuz crisis, according to AAA, almost certainly playing a role in inflation this year – but economists said they expect price pressures to be broader than just higher prices at the pump.
They expect the core reading of the personal consumption expenditures price index, which is the Fed’s preferred inflation figure and excludes volatile food and energy prices, to rise 2.8% in the fourth quarter compared to the previous year. That’s a jump from forecasts of 2.6% earlier this year.
Economists said they expect oil to settle at $86.70 a barrel by the end of June, and finish the year at roughly $73.54.
The Federal Reserve on Wednesday held interest rates steady in the 3.5% to 3.75% range, opting to stay in wait-and-see mode amid the war in Iran and conflicting economic signals.
Most policymakers kept their predictions for the year the same, with the closely-watched “dot plot” showing one rate cut this year and another in 2027.
Like the economists in the survey, the Fed’s forecasts for GDP and unemployment were also little changed, and they now expect higher inflation.
Fed Chairman Jerome Powell – whose term ends in May – nodded to heightened uncertainty around the war in Iran, joking that if there was ever a meeting to skip economic projections, “this would be a good one, because we just don’t know.”
But he also nodded to the economy’s relative steadfastness in the face of severe shocks, saying it has done “pretty well through a lot of significant challenges” – adding that slow job growth is partially due to an immigration crackdown, while tariffs and the pandemic have hit inflation.
Economists in the Journal’s survey also acknowledged the economy’s ability to withstand recent shocks – but noted that there is no guarantee this resilience will continue.
“Given the ongoing war in the Middle East, surging oil prices, high tariffs, AI and the severe constraints on immigration, it is worthwhile noting how resilient the US economy has been so far,” Bernard Baumohl, chief global economist at the Economic Outlook Group, told the Journal.
“But we must not take this resilience for granted.”
Credit: Source link
