Morgan Stanley forecasts 40% recession odds amid stock market volatility

The Supplemental Retirement Board Meeting on May 1, 2025, in Portsmouth, Virginia, revealed a stark economic outlook, with discussions centering on the potential for a recession and the implications for local retirement plans.

Key highlights from the meeting included a significant reduction in the forecast for a soft landing in the economy, now estimated at just 30%, down from 60% the previous month. This shift raises concerns, as the odds of a recession have climbed to 40%, with stagflation risks at 30%. The board noted that GDP growth projections for 2025 and 2026 have also been cut, indicating a troubling trend towards stagnation.

The meeting emphasized the importance of monitoring the Consumer Price Index (CPI), which is expected to peak at around 5% in the third quarter of 2025. Unemployment rates are projected to rise from 4.2% to 4.9%, further complicating the economic landscape. The Federal Reserve's anticipated easing campaign is expected to resume by the end of 2026, with the target for the Fed funds rate set at 2.75%.

In terms of market performance, the board discussed the S&P 500's trading range, predicting a potential decline of 16% in a bear case scenario. The meeting also highlighted the volatility in the market, particularly in the tech-heavy NASDAQ, which experienced a significant downturn recently.

Overall, the discussions at the meeting underscored a cautious approach to retirement planning amid growing economic uncertainty, with board members stressing the need for vigilance in managing retirement funds in light of these forecasts. The implications of these economic indicators will likely shape future decisions regarding the city's retirement strategies.