Fears of U.S. Recession Ease as Inflation Cools


Recent data released by the government has shown a significant cooldown in consumer price inflation in June, alleviating concerns of a U.S. recession. This development has led economists to believe that the Federal Reserve may not need to take drastic measures to control price pressures.

Wharton Professor Jeremy Siegal, expressing his optimism, referred to the current state of the economy as a “Goldilocks economy” – one that exhibits strong economic growth with no signs of reappearing inflationary trends. Moreover, the University of Michigan reported a considerable surge in consumer sentiment in July, the most significant increase seen since late 2005.

Ryan Sweet, the chief U.S. economist at Oxford Economics, suggested that the easing concerns about a recession, which had been extensively covered in the media throughout the year, could have contributed to the boost in consumer sentiment and expectations. The decline in Google Trend searches for “recession” further supports this notion.

However, not all economists share the same optimistic outlook. Torsten Slok, chief economist at Apollo Global Management, believes that the impact of the Fed’s interest rate hikes over the past year and a half will soon take their toll on the economy. Slok contends that the transmission mechanism of monetary policy takes time to fully materialize, and the delayed effects of these hikes will likely result in a significant drag on growth. Consequently, Slok maintains that a recession is a more probable outcome than a soft landing, regardless of what happens with inflation.

Overall, while some experts remain cautiously optimistic about the current economic climate, others warn of potential challenges ahead. As inflation cools, the true trajectory of the U.S. economy will become clearer in the coming months.

Commentary on Recession This Week

Inflation in the U.S. has significantly cooled off, which is a positive development. However, there are still some concerning aspects to consider. Let’s take a closer look at the current state of the recession discourse.

Phil Camporeale’s Perspective

According to Phil Camporeale, a portfolio manager at JP Morgan Asset Management, the probability of a recession has dropped from 40% in March to 25%. He confidently asserts that the economy is heading towards a soft landing. In March, recession talk was widespread, even tricking the Federal Reserve into believing that they might need to ease by July.

Roger Ferguson’s Take

Former Fed Vice Chair, Roger Ferguson, agrees that there is an increasing possibility of a soft landing. However, he cautions against prematurely declaring it a done deal. Historically, weak sectors have had a spill-over effect on the broader economy. If we do experience a soft landing, it would only be the second or third successful attempt out of 11 or 12.

John Williams’ Forecast

John Williams, the New York Fed President, has a slightly different perspective. He believes that the U.S. economy won’t reach its weakest point until 2024. Williams predicts that slower growth will begin in the July-September quarter and extend into March. While he doesn’t anticipate a recession in his baseline forecast, he does foresee a period of slow growth.

It’s essential to closely monitor these varying viewpoints as we navigate the economic landscape in the coming months.

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