EXPLAINER: Recession fears grow. But how high is the risk?

If that happens, the Fed could potentially trigger a recession, perhaps in the second half of next year, economists say.By mid-2023, the Fed’s benchmark short-term rate, which affects many consumer and business loans, could reach levels not seen in 15 years. Analysts say the U.S. economy, which has thrived for years on the fuel of ultra-low borrowing costs, might not be able to withstand the impact of much higher rates.“Recession risks are low now but elevated in 2023 as inflation could force the Fed to hike until it hurts,” Ethan Harris, global economist at Bank of America, said in a note to clients.The nation’s unemployment rate is at a near-half-century low of 3.6%, and employers are posting a record-high number of open jobs. — Eventually, the slowdown would feed on itself, with layoffs mounting as economic growth slowed, leading consumers to increasingly cut back out of concern that they, too, might lose their jobs.The clearest sign that a recession might be nearing, economists say, would be a steady rise in job losses and a surge in unemployment. As a rule of thumb, an increase in the unemployment rate of three-tenths of a percentage point, on average over the previous three months, has meant a recession will eventually follow.Many economists also monitor changes in the interest payments, or yields, on different bonds for a recession signal known as an “inverted yield curve.” This occurs when the yield on the 10-year Treasury falls below the yield on a short-term Treasury, such as the 3-month T-bill. “It would be remarkable if the Fed is able to achieve it.” Deutsche Bank economists think the Fed will have to raise its key rate to at least 3.6% by mid-2023, enough to cause a recession by the end of that year.