Economic and Market Commentary

Recession Watch: What to Expect and When

Is the U.S. already in a recession? North American Economist Tiffany Wilding discusses the current debate, why we think we’re headed for a recession in the near term and how the Fed is likely to respond.

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Text on screen: Is the U.S. headed for a recession?

Images on screen: Tiffany Wilding, North American Economist

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Wilding: So I think I think there's really two questions that underlie the recession debate. And I think the first one is, are we currently in recession? And the second is, if not, how likely is a recession over the next year or so. So starting with the first question, various commentators, maybe those in the financial press, have recently suggested the U.S. economy's already in recession and that's the result of a reported contraction in real GDP growth in the first quarter, and what's likely to be a another contraction in GDP in the second quarter. Now, the NBER's definition and methodology uses a much more comprehensive approach. So they consider a recession a significant decline in economic activity and they use a range of things like real aggregate incomes and consumption, manufacturing, trade sales, industrial production and employment based on the household and establishment surveys. So now, if we look across these indicators, what we find is that more recently, actually, three out of six of them are actually in contraction. Which basically suggests it's possible that we're currently in recession, but we think we're more likely just realizing a rapid loss of economic momentum and one that eventually will culminate in an outright recession. You know, now, there are other factors that lead us to believe that recession is more likely than not this year, and the biggest being monetary policy, realigning inflation with target will require restrictive monetary policy. And because inflation now appears more broader based, more entrenched, targeting just below trend growth, I think may not be enough to bring inflation back down and I think it's increasingly likely that the Fed will need to target outright contraction and activity to really get inflation under control. So that's why we think recession is ultimately inevitable.

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