In a statement following the decision by the Federal Reserve not to raise interest rates this month, The Conference Board's principal economist, Erik Lundh, issued the following statement:
"The Conference Board posits that businesses should expect interest rates to remain high for the duration of 2023. Furthermore, the Fed’s work to tighten monetary policy coupled with the reverberations from the banking crisis will likely continue to make credit availability scarcer. Thus, loans may become even more challenging to secure for businesses and consumers moving ahead.
"As the full impact of these developments continue to weigh on the economy, The Conference Board forecasts that a recession will occur this year. Additional factors that may weigh on the economy include the termination of the student loan repayment reprieve at the end of September, and the spending cuts associated with the debt ceiling agreement. These developments may weigh on consumption and government spending respectively toward the end of the year."
- KC's View:
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Whether or not we'll go into recession seems to be nothing but a big guessing game. (I'll concede that many people already have a recessionary mindset, which is almost as bad.)
Wall Street Journal columnist James Mackintosh has a piece this morning in which he writes that "the 2023 recession is missing in action. At the end of last year, economists were more convinced than they’ve ever been that recession was on the way, but it refused to arrive. Now investors, economists and Federal Reserve policy makers are giving up on the idea, expecting the economy to be (a bit) stronger and stock prices and bond yields to be higher.
Why aren’t we in recession? Is it still on the way? And could it be that the recession forecasts perversely helped us avoid recession?
"The recession didn’t arrive because we had two pieces of surprising good news. First, energy prices dropped, helping support demand, as Europe secured supplies to replace Russian gas more easily than expected.
"Second, the economy and the jobs market turned out to be far less sensitive to interest rates than economists thought, at least so far. Companies and consumers had locked in long-dated loans with low rates during the pandemic. Household savings piles took time to run down. And workers got big raises, more than inflation. All these factors supported consumption and business. Rebounding stock and credit markets and steadyish long-dated Treasury yields meant overall U.S. financial conditions have eased since October even as the Fed tried to tighten them."
Doesn't mean there won't be a recession. It may just be delayed. Your guess, though, is as good as anyone else's.
