In the latest episode of Onward, Ben and Cardiff work through one of the most confounding questions currently poised for the economy: What do we make of two seemingly contradictory data sets, where one is telling us that the economy is generally healthy, while the other says we remain precisely on track for a full-blown recession, according to all historical precedent?
On one hand, we’ve recently seen generally positive reports from areas like consumer confidence, home prices, retail performance, the job market, and GDP. But on the other, a few glaring signals forecasting a recession remain loud and clear — specifically, the inverted yield curve, the stubbornness of inflation, and the recent trajectory of interest rate hikes, which, according to the Fed itself, have yet to peak.
This source of cognitive dissonance recently sent Ben down a path of research, which has led to a critical observation: Before every recession in recorded Fed history comes a “Great Lag” — an average of 10 months between when the Fed reached peak interest rates and when the subsequent recessions actually began… resulting in a devastating average total stock market decline of -43%.
(To read more about this data and our analysis, read our 2023 mid-year letter.)
Taking this data into consideration, the task of navigating the recession still hasn’t even started — in fact, we still haven’t even entered the first inning, as Ben says. If many companies are already strained with current interest rates — as we’ve seen borne out in some sectors of commercial real estate — they certainly are not prepared for the the multi-year marathon of economic hardship that this data forecasts.
So, despite the relative calm of our current economic moment, Ben points out that right now is the moment to prepare for what is almost certainly a recession still lingering on the horizon.
We recommend listening to this episode alongside Episode 22, “The case for optimism,” for an even more comprehensive picture of where we think the economy is headed in the truly long-term, both good and bad. All this and more in the latest episode of Onward, anywhere that you listen to podcasts.
