Don’t Call It A Recession

Don’t Call It A Recession

It's not a recession. It can't be. The labor market is too strong. The midterms are too close. And the Fed still needs to squeeze in another 100bps worth of rate hikes by year-end. You can write your own dark jokes. There are plenty. And attempts on the part of analysts, economists, administration officials and monetary policymakers to explain away a second consecutive quarterly contraction in the world's largest economy will invariably backfire. Sundry "explanations" will only serve as more f
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17 thoughts on “Don’t Call It A Recession

  1. I would take that bet- Don’t think there is 100 left in the bag. You can argue we are not in a recession- it is semantics now in my view. The economy is slowing quickly. You can call it whatever you wish. As you said to me, the numbers are the numbers…..

    1. 4% or 5% inflation isn’t a sustainable state of affairs. To reiterate: Inflation has to (must) come down closer to 2%. The Fed understands this. And hopefully, they’re prepared to do whatever’s necessary to achieve that. The problem here (and I’ve said this again and again) is that an already disaffected populace cannot (and will not) countenance 5% inflation over a long period of time if labor (as an economic actor) loses whatever small bit of leverage it managed to reclaim post-pandemic. Here’s what will happen in that scenario: Wage growth will trail inflation by a wide margin, further inflaming societal tensions until eventually, another populist takes control of the White House promising to fix the situation. This is like climate change — we won’t notice it until it’s too late. You can’t have (or even risk) 5% inflation in perpetuity if there’s even a small chance that growth will be subdued over the same period and labor is powerless vis-a-vis capital. You’ll have social unrest. If it takes a deep recession to prevent that, then so be it. Everyone will understand this belatedly when it’s 2025, inflation is 5%, growth is anemic and worker strikes are a fixture of the economy, along with street protests.

      1. It sure looks like the Fed and, by extension the WH, are blaming labor for the current state of inflation. This has been an overly spun narrative for some time now that, begs some discernment because, it seems to have an objective. If Biden falls for this trap he all but assures voters will continue turning on him and his party for the alternative who will no doubt be promising to fix inflation without harming voters.

        I agree that QT is necessary to stave off global inflation, but let’s stop victim blaming here. Lower income taxpayers need some assistance to ride out this storm. Congress is sitting on their hands hoping that voters will ignore the pain they are putting them through with their inaction.

        Oh and by the way, can we PLEASE abandon the two party system now? Obviously two parties are not enough to avoid the democracy death spiral the United States is currently in.

      2. I hate to agree with our dear leader but a quote from Ron DeSantis supports his warning about inflation helping enable a smart populist leader:

        “We’ve got to start putting the people first over the ideology of the ruling class and the governing elites.” DeSantis said at an event last month.

      3. Olivier Blanchard respectfully has a different take. He, and I also do not think 2% is some magical number. What makes 2% the number (because Alan Greenspan the failed Fed chairman said so?) ? Blanchard has suggested 3%. I think Australia has also targeted 3% fairly successfully in the past. In any case if the economy keeps slowing, 2% is not going to be much of a problem. I am currently trying to sell an apartment in NY- the bid side is dropping like a stone and my realtor reports the only activity there now is broken contracts. I keep hearing adds for incentives for cars on the radio too. And retail is reporting a bulge of inventory. Out where I am on Long Island right now, gas prices have dropped ~$1 a gallon in the last month. We shall see what the inflation numbers bring in the next couple of months but based on what I am seeing they are going to be a lot lower in the next 3 months- notwithstanding the lag from owners equivalent rent. Social upset was baked in the cake no matter what Joe, Congress and Jay did- the economy has taken not 1 not 2 but 3 major supply shocks in the last 2 years. First it was unemployment and pictures of average Joe and Jane waiting in mile long ques in their cars for food handouts and depression in employment. Now average Joe and Jane and above average Joe and Jane are suffering from real wages declining. I watched Jay Powell’s conference- he was decidely neutral on the path of monetary policy. I think the bond market jumped the gun a bit, but the talking head Fed watchers were probably caught out also- he was not totally hawkish either. Take Powell at his word – the Fed is watching the stats and making decisions meeting to meeting. The best thing market observers can do is try to figure out the economy- if you do that you will probably figure out the path of short term rates.

  2. Relax, hours worked per week and productivity growth are both going down and therefore we are in a recession and there’s no argument to suggests otherwise. Furthermore, Treasury yields are falling fast, as GDP declines, indicating demand destruction phasing in. Earnings revisions will quickly be linked to layoffs and inflation will soon spin downwards in a deflationary spiral that will collide with the impacts of Putin Euro crisis by Christmas. Whipsaw volatility will be offset by passive buy the dip momentum that takes us into slow global growth and an investible future. Amen

  3. In defence of not calling it a recession yet is the fact that so far most people who want a job can find one. That’s what is important to most people (followed closely by the requirement that that job pay a decent wage).
    On that second point, is there a scenario where wages for the average worker exceed inflation for a reasonable period of time? Where the poor can get even a little bit richer?

  4. Isn’t this the definition of “soft (ish)”? IE arguing over wether it is or isn’t? The Fed now has your attention. Continue forward with measured steps vis a vis interest rates. Heck, pause even. The sword of Damocles is QT. Don’t show your hand.
    The Fed’s mandate is not … make money for traders (?), the one percent (?)…
    YOU, H, HAVE MADE A CASE FOR THE COLLATERAL EFFECTS OF THE FEDS RESPONSE TO THE GFC. You have at least implied that the response to the GFC was only and always going to benefit the wealthy. That that outcome was or should have been known. You wring your hands (spill gallons of eloquent digital ink) over inequities and then you worry the direction of finance. I know, I know, because it’s effect on the little guy. I am struggling with this… notion… IT WAS EVER AND ALWAYS THUS.

    Both sides of the coin are TAILS!
    At various times and unevenly Capitalism provides luck as THE safety valve for social cohesion amidst …progress(?).

    The present conjuncture (your word) is the answer to why notions of MMT for social justice don’t work.

    In many ways the current moment feels like collectively facing the economic questions that were sidestepped by offshoring the American economy in the ‘70’s.

    We do kick the can down the road.

    1. This comment is indicative of why media coverage invariably ends up biased and polarized. Actually presenting both sides of the issues (as opposed to just pretending to) and arguing both sides convincingly prompts readers to suggest the coverage is inconsistent — “you, yourself have made the case!”, etc., etc.

      Yes, in fact, I “myself” have made the case. All cases, in fact. I can argue all sides of every case, and that’s precisely what I intend to keep doing in perpetuity, except in instances where one side is tantamount to geopolitical propaganda (that caveat isn’t generally applicable to daily coverage of domestic macroeconomic outcomes, but I think it’s important to include it — you’ll never find me parroting Kremlin talking points, for example).

      The truth is, almost nobody really wants to hear both sides. People want one side or, at the least, a one-sided (i.e., biased) interpretation of both sides. For most people, the internet is little more than a place to source endless confirmation bias.

      If you get confirmation bias from me, it’s by accident. Because to be totally honest, I’m a dispassionate observer. Precisely none of this affects me in any way, shape or form. Longtime readers know that, and it’s why people trust me. There’s no agenda here. None at all. That’s the most compelling pitch I could ever make for this site.

    2. The post MMT pandemic collision with Putin Ukraine warfare is somewhat of a new place for capitalism to be in.

      The potential dark winter ahead for Europe will be among the most significant challenges to capitalism, ever. Putin is literally going to experiment this winter to determine how much rope is needed to hang the West.

      It remains to be seen what role QE, QT or MMT will play if all of Europe literally freezes. My hunch is, nobody is preparing for that shock, especially since so many people globally are waiting to BTFD, but obviously, this is priced in.

      1. Nearly everyone (including, unfortunately, MMT’s biggest names) seems to mischaracterize what MMT actually is. They need to find a new name for it. It’s not “modern” and it’s not a “theory.” It’s just how government finance works in advanced, developed economies with sufficient monetary sovereignty. That’s all. MMT is not precisely the same thing as prescriptive exhortations to fiscal-monetary partnerships aimed at solving various societal problems. MMT, as it’s currently expounded by the biggest names associated with it, is a descriptive explainer on the sequencing of borrowing, taxing and spending. That’s really all it is. And when conceptualized like that, it’s not really debatable. I used to charge critics with erecting straw men to attack MMT, but eventually it occurred to me that nobody — not critics, not proponents and not MMT economists either — actually know what MMT is. So I stopped talking about it. Because, again, there’s nothing to talk about until the MMT crowd goes on the offensive by adopting a prescriptive action plan based on what, for now, is just a description of government financing.

        1. Inflation, too, is not really a “thing.” Rather, it is a descriptive term summarizing actual real world behavior. To beat it one should be attacking the individual areas of price behavior which are not in compliance with the desired stable state.

        2. Good job of level-setting in each of your comments above, H. And I like the MMT perspective. MMT is an abstract representation, a series of letters not clearly defined. It will become useful and relevant, or it will not, depending upon the practical value it enables.

          Oddly, the MMT discussion above reminds me of the Biden administration’s approach to governing: Their rhetoric seems to be abstract and less than useful until now. But I note that they must have shared some precise language with Joe Manchin. Suddenly there are constructive bills going to the Senate floor for a vote. Whatever is happening behind the scenes, I hope it proves to serve good purposes.

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