Is a recession coming? More experts seem to think so


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Summer comes before fall, so could Larry Summers accurately predict a recession?

The former US Treasury secretary, speaking on Bloomberg Television on Friday, has become one of the most high-profile economists to suggest the US is on track for a 2023 recession. The figures that have emerged last week seem to support it.

Future shock?

Summers, and others who predict a coming recession, have some pretty powerful rhetoric to hurl at the raging debate over the global economy. In the United States, inflation never exceeded 4% and unemployment fell below 4% without triggering a recession in the following 24 months. In February, consumer prices rose an unthinkable 7.9% and the unemployment rate was just 3.6%. If, as Shakespeare wrote, what is past is a prologue, then history is on their side.

In Bloomberg’s latest monthly survey of economists, 27.5% said there was a risk of recession next year, down from 20% in March. “The ‘inflation shock’ is getting worse, the ‘rate shock’ is just beginning, the ‘recession shock’ is coming,” BofA chief investment strategist Michael Hartnett warned in a horribly bit subtle last week. Adding fuel to the pessimistic fire, last week US bonds showed an “inverted yield curve”, which is when the yield on two-year government bonds is higher than that of 10-year public debt. The reversal is seen as a harbinger of an impending recession, predicting five of the past six. That’s a lot of evidence for those warning of a downturn. The question is: What is the rebuttal?

  • The inversion might not be so bad for the markets: after previous yield curve inversions, the S&P 500 posted a median return of 9% one year later and 16% two years later, according to Goldman Sachs .
  • People may be looking at the wrong yield curve: the gap between three-year bond yields and 10-year bond yields, which many experts consider a more reliable recession barometer, is wider than it looks was in January.

Space to run: “Much of the academic work suggests that the [3/10 spread] is a better indicator of a recession and instead feels like the economy is on fire,” Jonathan Golub, chief US equity strategist at Credit Suisse, told the Financial Times. “You still have a lot track from an equity investment point of view.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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