Why the recession is always six months away

By Nick Timiraos | Wall Street Journal

The next economic downturn has become the most anticipated recession in recent U.S. history. It also keeps getting postponed.

Recent strong hiring and consumer spending are the latest evidence that the pandemic and the unprecedented policy measures that followed are interfering with the Federal Reserve’s campaign to tame inflation.

The government’s stimulus measures left household and business finances in unusually strong shape. Shortages of materials and workers mean companies are still struggling to satisfy demand for rate-sensitive goods, such as homes and autos. And Americans are splurging on labor-intensive activities they avoided in recent years, including dining out, travel and live entertainment.

Wall Street economists began 2023 broadly anticipating a recession by midyear caused by the weight of the Fed’s rapid interest-rate increases. Some still expect that could happen. Many now think it will take longer to cool the economy and will lead the central bank to raise rates to higher-than-expected levels.

“It’s the ‘Godot’ recession,” said Ray Farris, chief economist at Credit Suisse. Mr. Farris found himself among a small minority of economists last fall who predicted the economy would narrowly skirt a downturn this year. Every six months, economists have predicted a recession six months later, he said. “By the middle of the year, people will still be expecting a recession in six months’ time.”

The Fed has been trying to slow investment, spending and hiring to combat inflation by raising rates, which makes it more expensive to borrow and can push down the price of assets such as stocks and real estate. After holding the benchmark federal-funds rate near zero during and after the pandemic, officials lifted the rate more over the past 12 months than any time since the early 1980s, most recently to between 4.5% and 4.75% last month.


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March 2023