17
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very unlikely to trigger a recession. Similarly, student loan debt will not trigger a recession, but this imbalance will
worsen a downturn once it is underway.
The main risks to U.S. economic growth are (1) the trade war, (2) a war between Iran and Saudi Arabia, (3) financial
panics and/or massive shifts in asset prices, (4) excessive risk taking in the form of leveraged lending to nonfinancial
businesses, (5) contagion from financial crises in foreign economies. In addition, there was an inversion of the yield
curve in 2019. The probability of recession beginning before the end of 2020 therefore is about 40 percent.
As always, energy prices are a wild card. The expectation is that oil prices will decline, but the political situation in
several significant oil-producing regions is tenuous. A war between Saudi Arabia and Iran would almost certainly push
oil prices over $100 per barrel, precipitating a recession. Finally, informal executive branch communications and/or
sudden policy changes with the potential to destabilize markets are impossible to handicap with any degree of
confidence but add substantially to the overall riskiness of the economic environment.
