The US economy added nearly half a million jobs in March. The Dow Jones industrial average is within 6% of its record high. And U.S. families have accumulated about $ 2.5 trillion in overtime savings throughout the epidemic.
Nevertheless, despite all the good news, predictions of a future economic downturn have spread on Wall Street.
Billions of investors, former Federal Reserve officials, and now even investment banks have repeatedly warned that the economy could hit a wall by 2023.
What drives the latest series of oppressed economic forecasts?
Is history repeating itself?
For some, it is a matter of comparing history. Former Treasury Secretary Lawrence Summers stressed in a recent Washington Post op-ed that current economic conditions undoubtedly remind us of past times of recession in U.S. history.
"Over the past 75 years, every time inflation has dropped by 4% and unemployment has dropped below 5%, the US economy has been in jeopardy over the next two years," Summers wrote.
Today, the US inflation rate is close to 8%, and the unemployment rate dropped to 3.6% in March. As a result, Summers now sees an 80% chance of a recession in the U.S. next year.
Conversion of crop curve
Gary Pzegeo, head of fixed income at CIBC's U.S. The Private Wealth division, has stated that it believes most of the current predictions of the recession come from "market signals" as the latest, or shorter, yield volatility.
Rising commodity prices, the Federal Reserve's decision to raise interest rates, and the war on Ukraine's effects on global economic growth have taken steps to reduce the recent curve of yields, Pzegeo argued. And when it did, it sparked fears of a recession.
After all, the 2s / 10s yield curve inversion — when the short-term bond yield of two years exceeds that of the 10-year long-term government bonds — has predicted all the recession since 1955, with only one false signal at that time. Estimated economic downturn after crop rotation fluctuations: between 6 and 24 months — hence, all forecasts for the 2023 recession.
However, Pzegeo said that although the chances of a recession have increased in recent months as market indicators brighten up, the CIBC has not yet predicted the recession "as its basis."
Inflation, war, and slowing growth
Some banks are hopeless. Economists at Deutsche Bank now see the recession approaching the end of 2023 as inflation becomes increasingly based.
"Two events in recent months, the Ukraine war and rising inflation in the US and Europe have prompted us to revise our forecast for global growth," a Deutsche Bank team led by economist David Folkerts-Landau said on Tuesday. . "We are now planning a recession in the US ... within the next two years."
Economists have noted that the Ukraine war has disrupted global supply chains and dramatically increased commodity prices and energy costs in the U.S. and in the EU.
CIBC's Pzegeo said inflation often led to the destruction of wealth, especially when rising consumer prices outpaced wage growth.
“It works like a tax. So give it a little time in the economy, and it will consume your wealth and set the stage for a recession, ”he said.
Recent GDP forecasts from the Conference Board have also led to fears of an impending recession. US real GDP growth is now expected to decline to only 1.7% annual turnover in the first quarter of 2022, compared to 7% annual growth seen in the fourth quarter of 2020.
Can the Fed save us?
For some economic forecasters, the Federal Reserve is key to predicting the coming recession.
Since the start of the epidemic, the central bank has supported the US economy by keeping interest rates almost zero to help borrow money. U.S. debt markets are also flooded with financially to promote economic activity through a monetary policy called quantitative easing (QE).
Now, as the epicenter of the epidemic slows and inflation rises unprecedented in the last four decades, the Fed is facing a daunting task: to secure the so-called stable stability of the US economy. The goal is to raise interest rates and eliminate QE in order to slow economic growth and fight inflation — all without triggering the recession.
The millionaire now believes the US economy will see a recession "or worse" by the end of next year, and economists at Deutsche Bank agree.
“We no longer see the Fed reaching a soft spot. Instead, we expect that strong monetary policy tightening will put the economy in a recession, ”said the bank's economists.
