A survey out this week showed that economists see a 1-in-4 chance the economy will fall into a double dip recession.
The survey from the National Association for Business Economics found that two-thirds of its members say that the economy hasn’t yet emerged from the recession that began in February as the coronavirus pandemic began to take hold of the U.S.
The NABE’s members aren’t alone in thinking there’s a chance for a double-dip recession.
Kansas City Federal Reserve President Esther George said this week that the recession that began in February could revisit the economy should the coronavirus pandemic intensify this fall.
“An important risk to that outlook is thinking about what happens as we come into the fall, whether we see any resurgence in the virus that would cause an additional pullback in the economy,” George told CNBC. “We’ll monitor that carefully to see whether that plays out.”
Still, George said “we will continue to see the economy improve,” adding that “financial conditions are very accommodative. We have low rates, we still have capacity in those credit facilities. So I think it’s too soon to try to speculate on whatever else might be needed, other than to say the Federal Reserve is going to be very vigilant on that and be prepared to respond if they would have to.”
Beyond a double-dip recession, Invesco’s Kristina Hooper is concerned overzealous investors are getting too caught up in market momentum given the current risks to the market.
“People have become very set in their opinions,” Hooper said. “Some believe that there’s no end in sight to the stock market rally. Others believe that because we continue to hit new highs, things are getting quite frothy.”
Hooper argues that retail investors are making risky one-sided bets off their polarized market views, and believes it’s a trap that could result in steep losses.
“There’s some speculative fervor in markets, and it’s similar to what we’ve seen with bitcoin,” Hooper said, adding that the current market has similar characteristics to the dotcom bubble.
“It’s always great to see more investors come into the market. Just hopefully, we can remind them of important long-term investing tenets like diversification,” Hooper said, noting that the uncertainty surrounding the path the coronavirus will take is a risk to the economy’s recovery. “We don’t know exactly how this economic recovery plays out. The most important thing we need to be focused on is being well diversified.”