The U.S. economy is not headed toward recession even though the Federal Reserve, aiming to quash the highest inflation in 40 years, has raised the main interest rate at the fastest pace since the 1990s and signaled further half-percentage-point increases in July and August, according to Moody\u2019s Analytics<\/a>. During the past several months construction firm leaders making decisions on such critical factors as wages, prices and capital allocation have had to weigh a broad range of risks, including rising price pressures, supply chain bottlenecks, the possible emergence of new coronavirus variants and turmoil in commodity markets from Russia\u2019s invasion of Ukraine.<\/p>\n Extreme variation in forecasts for economic growth has complicated planning, with some economists and other analysts warning that a downturn is highly likely.<\/p>\n \u201cWhen inflation has been above 4%, unemployment has been below 4%, we\u2019ve always had a recession within the next two years,\u201d Treasury Secretary Lawrence Summers said Tuesday<\/a>. \u201cThe likelihood is that we\u2019re not going to get through this with a soft landing.\u201d<\/p>\n Top Wall Street bankers have sounded a similar alarm.<\/p>\n \u201cThis is among \u00a0\u2014 \u00a0if not the most \u00a0\u2014 complex, dynamic environments I\u2019ve ever seen in my career,\u201d Goldman Sachs President John Waldron said Thursday<\/a>, according to Bloomberg. \u201cThe confluence of the number of shocks to the system to me is unprecedented.\u201d<\/p>\n \u201cWe expect there\u2019s going to be tougher economic times ahead,\u201d Waldron said at an investor conference, citing inflation, reduction in monetary stimulus and Russia\u2019s invasion of Ukraine. \u201cNo question we are seeing a tougher capital-markets environment.\u201d<\/p>\n JPMorgan Chase CEO Jamie Dimon said Tuesday investors should prepare for a \u201churricane\u201d whipped up by an unprecedented mix of challenges, including the Fed\u2019s plan to reduce inflation from its current 8.3% level.<\/p>\n Tight labor markets and several other forces may spur inflation despite the Fed\u2019s efforts, clouding the outlook for the economy, according to Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget.<\/p>\n Any future increase in inflation expectations, $2.3 trillion in excess savings and new shocks to the supply of commodities such as oil and grain may also sustain price pressures, Goldwein told the National Economists Club on May 26.<\/p>\n At the same time, firms have heard a more optimistic view of the economic outlook. Several factors such as declining equity prices, an increase in the supply of labor and an untangling of supply chains may help slow inflation in coming months, Goldwein said.<\/p>\n Also, the Fed\u2019s aggressive tightening has worked, bringing down inflation expectations in recent weeks, Zandi said. \u201cWith inflation expectations contained, inflation will recede,\u201d he predicted, adding that the pandemic will continue to fade \u201cand the worst of the economic fallout from the Russian aggression is behind us.\u201d<\/p>\n Comparison with past instability in the U.S. economy should also spark optimism, Zandi said. \u201cNone of the problems that typically plague the economy and cause or contribute to a downturn are evident today.\u201d<\/p>\n First, U.S. households devote the smallest share of their income to interest and principal payments on debt than at any time in four decades, he said. \u201cThey also did a yeoman\u2019s job locking in record-low interest rates\u201d during the past several years and saved much more during the pandemic than during typical periods.<\/p>\n \u201cThere is plenty of extra cash to help consumers remain stalwart spenders through economic thick and thin,\u201d according to Zandi.<\/p>\n Pent-up demand for vehicles and housing will probably buoy economic growth, and \u201cbusinesses are also in great financial shape \u2013 they have never been so profitable,\u201d he said, adding \u201ccorporate debt burdens are also as light as they\u2019ve been in a half century.\u201d<\/p>\n \u201cPerhaps most encouraging, the nation\u2019s financial system has arguably never been stronger,\u201d Zandi said, noting that \u201cbanks are highly profitable and awash in capital.\u201d<\/p>\n \u201cIt is difficult to conjure up scenarios in which financial institutions would suffer to the point that they curtail providing credit, and as long as credit continues to flow, recession is less likely,\u201d Zandi said.<\/p>\n This item was originally posted here: Read More<\/a><\/p>","protected":false},"excerpt":{"rendered":"
\n\u201cRecession is not inevitable today, nor is it the most likely path for the economy,\u201d Moody\u2019s Analytics Chief Economist Mark Zandi said, noting several bright spots including high corporate profits, strong bank balance sheets and abundant consumer savings.
\n\u201cRecession calls are sure to get louder as the Fed continues working to rein in inflation and politicians running in the midterms portray the economy\u2019s struggles to their advantage,\u201d Zandi wrote in a research note. \u201cIgnoring the calls is not advisable, but given the economy\u2019s strong fundamentals, buying into those calls is not recommended either.\u201d\u00a0<\/p>\nDive Insight:<\/h3>\n