By Ami Weiss, Staff Writer
The global economy, once battered by the storms of the COVID-19 pandemic, has embarked on a turbulent journey of recovery. As markets initially crashed, the government injected stimulus checks to revive economic activity. However, this well-intentioned move led to a 9.1% inflation rate in 2022, triggering events that now shape the current economic landscape.
In the wake of soaring inflation, banks responded predictably by raising interest rates for borrowers. The intent was to cool down an overheated economy, but the fear looms that these high rates might usher in a recession, prompting the Federal Reserve to cut interest rates. It’s a bit like finding the right balance, and people are curious about how the central bank plans to navigate these uncharted waters and guide the economy.
According to CNN, in August 2022, 72% of analysts predicted a recession by the middle of 2023, but notably, that will most probably not be happening. This isn’t to say that there will be no recession; rather, we might have a recession at a later time. Citadel CEO Ken Griffin, along with many other economists, warns of a looming recession as early as Q2 in 2024. Compounding the concerns, a potential time bomb ticks away with almost $1.5 trillion worth of mortgages due in the next two years. An inverted yield curve further complicates the economic outlook, signaling potential challenges ahead. Not to mention the Israel-Hamas and Ukraine-Russia wars and how our further involvement in these wars can have a major impact on our economy. All of these factors point towards a looming recession.
Interestingly enough, a panel was conducted with 198 economists of the NABE (National Association for Business Economics) in August 2022. The panel’s questions were to figure out where our economy was and where it was heading.” 20% of panelists said that we were in a recession already but our government just seemed to be denying it. From January to March, our GDP decreased by 1.9%, and from April to June, it shrunk another 0.9%. A recession is 2 consecutive quarters with negative GDP, so, by definition we were in a recession.
Now we have to ask the critical question of “Are we heading for a soft landing, returning to targeted inflation rates without a recession, or will a “short and shallow recession” be the cost of achieving the 2% inflation rate?
As we delve into the current market dynamics, it’s noteworthy that the year-to-date (YTD) return for the S&P 500, Dow Jones, and the Nasdaq stands at 17%, 5%, and 36%, respectively. Notably, on October 23, the 10-year and 30-year US Treasury bond yields hit 5%, a level not seen in 16 years. This triggered a brief market dip of around 200 basis points. Subsequently, the first week of November brought an unexpected twist as the S&P 500 rebounded strongly, posting its best week of the year with a gain of nearly 6%. This surprising momentum was largely influenced by hints from Jerome Powell, the chairman of the Federal Reserve, that there will be no more rate hikes.
The U.S. economy has been on a rollercoaster, marked by resilience, inflation, and the looming specter of a recession.The dance between stimulus measures and their unintended consequences, coupled with global uncertainties like the Israel-Hamas conflict, adds complexity to our economic outlook. As we navigate these challenges, the question of a soft landing or a “short and shallow recession” remains unanswered. The future remains uncertain, requiring careful observation and consideration of various factors to anticipate what lies ahead.