The Fed tightening that started in March has been accompanied by increasing talk of a recession. It’s certainly true that a recession is more likely now than it appeared six months ago. The US economy faces a number of headwinds, and, while none of them are enough to stall the recovery, the confluence of so many issues is worrisome.
We’ve added a recession scenario to our forecast. But we still think a recession is less likely than some analysts would have you believe. When the economy is currently adding almost half a million jobs per month, a turnround would take time (unless, of course, a second pandemic hits the globe). For that reason, we expect any coming recession to occur at the earliest in late 2022 or 2023.
The main argument for a recession is that one usually occurs after the Fed starts hiking interest rates. That is true, but only part of the story. Just because recession occurs after the tightening cycle has started does not mean that the tightening caused the recession. Recessions occur because of shocks in the economy
Recent recessions have not, in fact, been associated directly with Fed tightening. The 2001 recession, for example, followed the bursting of the stock market bubble, while the 2007–09 recession followed the housing crash (and the subsequent financial crisis). The most recent recession was the result of a global pandemic and had no connection to monetary policy. Continue reading from Deloitte Insights
