Many economists don’t think a recession is imminent — despite sky-high inflation, rising interest rates, faltering stock prices, war in Ukraine and Chinese lockdowns. Here’s why.
Sky-high inflation, rising interest rates, faltering stock prices, war in Ukraine and Chinese lockdowns — it’s enough to make investors think another U.S. recession isn’t far away.
Start with households. They’ve built up historically high savings during the pandemic and have relatively little debt. By some accounts, families have $2 trillion to $3 trillion in extra savings compared to pre-pandemic times. “Corporate America still looks remarkably strong,” said Christopher Smart, chief global strategist at Barings Investment Institute.
Shearing disputed the notion of an imminent U.S. recession in note to clients called “From ‘Roaring’ to ‘Recessionary Twenties’ – how convincing is the market’s latest story?” He pointed out that just a year ago investors were expecting a long era of growth after the pandemic waned.Economic headwinds For one thing, interest rates on short-term debt briefly surpassed long-term rates recently in what’s known as an inverted yield curve. The “curve” has inverted before every U.S.
Although rates are rising from a very low level, the rapid Fed hikes could still pose a problem for an economy that has gotten used to cheap money.If the lockdowns get worse and cause heavy damage to the world’s second largest economy, the effects could spill over over to the U.S. Supply-chain disruptions that have fed the worst inflation in 40 years could persist, making inflation worse and forcing the Fed to raise rates even higher.
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