Since the pandemic, but especially in recent months, there have been rising consumer fears over the possibility of a recession. Although a quick return to normalcy in the years following the pandemic allowed the economy to “land softly”, as opposed to crashing, the possibility of a recession may be shifting closer to reality. Indeed, perspectives from Wall Street show increased caution. CNBC reports that bets on recession odds are up from the standard 20%-- “Moody’s Analytics’ model has raised its recession outlook for the next 12 months to 48.6%. Goldman Sachs boosted its estimate to 30%. Wilmington Trust has the odds at 45%, while EY Parthenon has it at 40%” (CNBC).
The labor market has been strained for the past year, with limited growth. Enough jobs have been created to replace those that were shuttered, but the increase across the board is minimal. Geopolitical conflicts, namely that with Iran, are increasing concerns about the price and accessibility of oil, both for consumer use and production needs. Historically, oil shocks have preceded major US recessions, but more time must pass to determine if the current situation can be characterized as a shock. Fed Chair Jerome Powell continues to be cautiously optimistic and refuses to use the term stagflation; when asked, he asserted that the present moment is markedly different from that of the 1970s.
The fact that recession odds are rising even before a major downturn actually happens shows how much sentiment and forecasts matter, especially on Wall Street.
ReplyDeleteOverall, this highlights how multiple factors-labor market weakness, global conflict, and rising costs can all combine to increase recession risk, even if we’re not fully there yet.
It seems that there will have to be a recession soon following the natural cycle of the economy. The fed is doing what they can to stop it, but it will have to be inevitable.
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