Whatever Happened To That Recession Economists Have Been Predicting?

It all adds up to more evidence that we're in a strange economic situation. Whatever Happened To That Recession Economists Have Been Predicting? Giphy

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The U.S. economy has faced a number of problems over the past several years — a pandemic shutdown, widespread supply-chain interruptions, and rampant inflation, to name a few. But one thing we haven’t seen (despite widespread forecasts by economists) is a recession … at least not yet.

Let’s explore why so many forecasters got it so wrong.

An unprecedented situation

As anyone who lived through 2020 will attest, it was a pretty bizarre time. People were afraid, lives were being disrupted, and many forms of commerce were brought to a standstill.

And in retrospect, chief economist Matthew Luzzetti of Deutsche Bank, which predicted a recession last year, admitted such forecasts were based on an understanding of the economy that might not be accurate today.

“It was always going to be difficult to forecast what an economy was going to look like emerging from a mostly unprecedented pandemic,” he said.

Defying the expectation

When the pandemic was over and consumer demands spike, inflation took a foothold. Then the central bank raised interest rates, which has historically signaled a looming recession.

Instead, we got:

  • An economy that grew more than 3% in 2023
  • An unemployment rate that is still at historic lows
  • An inflation rate that is nearly down to the Fed’s goal

All of that happened when interest rates were at levels we haven’t seen in a generation.

What happens next

The big question remains: Is there still a recession coming? Obviously, it’s impossible to predict the future — but former Treasury Secretary Lawrence Summers is revising his take on a “soft landing” by which inflation returns to normal without triggering a recession.

He previously described such a scenario as “the triumph of hope over experience” but now admits: “This is looking like a case where hope has triumphed over experience.”

Chris Agee
Chris Agee January 27th, 2024
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