Another recession in the US economy
In the realm of economics, there are often two camps of thought when it comes to the possibility of a recession. Some economists believe that a recession is inevitable, while others hold the belief that it can be avoided. And nowadays we can see different views on the probability of the new US economic recession. For example, according to Bloomberg information from May till the middle of June 2023, we can present opinions of different camps.
On the one hand, “global fund managers are now the most pessimistic they’ve been all year, flocking to cash amid concerns that a recession is looming, according to Bank of America’s latest survey. 65% of survey participants now expect a weaker economy, the poll showed, though around two-thirds see a soft landing and only a small contraction in earnings. Cash levels rose to 5.6% in May, exposure to equities also climbed to the highest this year, and bond allocations are now the biggest since 2009.”
On the other hand, according to forecasts by median responses in the Bloomberg survey of economists, a new recession may be avoided, and the US real GDP would start rising in Q2, 2023. And “despite a difficult year with high oil prices, a significant bump in the Fed’s policy rate and a small banking crisis, consumers are looking relatively nonplussed”. Besides, “the Federal Reserve Bank of San Francisco estimates there’s still a ton of excess savings floating around the economy — some $500 billion, and retail sales have come in higher than expected for the fourth month in a row. Besides, the strength of the US labour market is greatly underestimated”.
However, the challenge lies in accurately predicting when a recession will occur before it becomes evident to everyone. Failing to forecast the timing of an impending recession can lead to substantial losses for investors, financial institutions, and employees alike. Accurate forecasting of the recession’s onset allows for proactive measures to be taken, including adjustments to investment portfolios, strategic planning, and the adoption of prudent risk management practices. With the right information at hand, stakeholders can position themselves to weather the storm and even uncover opportunities amidst economic challenges.
According to our CMI model of the business cycle, the new US economic recession is inevitable. More than that, even if Fed starts to decrease interest rates dramatically, it will not be enough to avoid the new recession. Nevertheless, such decreasing would initiate a short-termed rally in financial markets. However, it would make future financial crises deeper than they may be without the interest rate decreasing because the new recession will be the driving force of a new financial crisis. According to CMI-model Fed should use nonstandard monetary policies (quantitative easing, for example) to avoid a new recession. However, in the case of the impending recession, it may prove to be challenging for the FED to effectively use such policies due to the high rate of inflation.
The inevitability of a new recession in the US economy is a matter of concern for all stakeholders. While economists may hold differing opinions, the ability to forecast the timing of an impending recession is paramount. With our CMI model forecasts, we can say when the next recession starts beforehand.
Thus, the main question is when the new recession may happen. We provide the answer for our clients with the accuracy of about 1-2 months and we explain why it is inevitable (see www.econometrics.finance). At Econometrics. Finance we specialize in providing timely and accurate economic forecasts to our clients. By leveraging our services, businesses, investors, and individuals can gain a competitive edge in navigating the economic landscape.