Moody's Economist: The Market May Avoid Recession But Run Into "Slowcession"
The U.S. economy will continue to struggle in 2023 with limited growth and a high unemployment rate. Many investors expect the Federal Reserve’s aggressive rate hike will push the U.S. economy into a recession at some point in 2023. While there is a chance to avoid the economic downturn and going into a “slowcession”, according to a Tuesday notes from Mark Zandi, Chief Economist of Moody’s Analytics.
Market pessimism into recession
So far, the market has a voice that strongly believes 2023 will head into a recession. Moody's Analytics' latest economic survey shows the probability of a recession starting in 2023 at close to two-thirds.
The Conference board’s leading economic index also gives a similar dark outlook. The index compiles 10 indicators (e.g. shape of the yield curve, housing activity, labor market data) that have historically led to recessions, which alarms that recession may come 6-12 months later.
"Slowcession" may comes
However, Zandi is less pessimistic about the outlook than the mainstream, as he believes the Fed can fight inflation without leading the market into a deep recession:
There is no doubt the economy will struggle in the coming year as the Fed works to rein in the high inflation, but the baseline outlook holds that the Fed will be able to accomplish this without precipitating a recession.”
He further explained that the market might get into slowcession, which means a longer period of slowdown but not a downturn. It will provide a softer environment for investors and consumers to cope with.
[The Fed] will be able to raise rates high enough, fast enough to sufficiently quell the wage and price pressures, but not so high and fast that it knocks the wind out of the economy. This is a scenario that we might well call a slowcession—growth that comes to a near standstill but that never slips into reverse.”
But he is worried about the "self-fulfilling prophecy"given the level of pessimism in the overall market. This means consumers and businesses will curb spending and investment to secure themselves from the recession expectation, and these moves may eventually lead the market into recession.
U.S. financial system is in good shape
Zandi stated in the notes that American households are keeping financially healthy from their savings, and businesses are in a good position as they are making money even with a lower margin.
Also, the nation’s bank system stays on the strong financial ground compared to decades ago. Currently, the banks’ credit is neither too much nor too little, which will keep the banks well-capitalized. Besides, the low vacancy rate of the housing market differs from the previous pre-recession situation, and the government is in tip-top financial shape with enough tax revenues. All these add optimism for the market to avoid the recession as fundamentals are solid.
Typically, prior to recessions, the economy is plagued by significant imbalances such as overleveraged households and businesses, speculative asset markets, an undercapitalized financial system that has extended too much,"Mark Zandi wrote in the notes.
‘Known unknowns’ are a risk
There are still many risk in the market, and Zandi called it "known unknowns." It includes the Fed missteps, debt limit, Geopolitical conflict, and a plenty of known factors that hard to predit how these may change the market outlook. He warned that " if anything veers even a bit off script, skittish consumers and businesses will quickly pull back, and the economy will sink into recession."
So mooers, what do you think? Do you agree with Zandi's opinion that the U.S. economy could aviod recession?
Source: Moody's Analytics
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
How do analysts evaluate the market?
18KFollowers
46Following
38KVisitors
Follow
The Random Investor : Stocks To Buy Now That Will Make You Money In The Upcoming Stock Market Crash
71386743 : Many company have been decreased profit expecting in Q4 2022.
70185181 : In fact, the market's economic recession began on the day the 2-year Treasury bond yield curve and the 10-year Treasury yield curve were reversed. Once the Federal Reserve acknowledged the recession, it saved the economy. But I don't know why Biden and Powell still persist in suppressing the stock market? The so-called inflation data are all clearly falsified. It's nothing more than trying to clean up the money in retail accounts. Let everyone be a slave to the American government.
intuitive Jackal_354 : wow, big banks screwing the fed, and now they think they can control the nation's economy. these excessive gains in the market will cause the fed to be more aggressive in controlling inflation. but big banks and hedgefunds don't care, they don't care about everyday people that have to work for a living. they only care about themselves. I see the United States edging toward a revolution, and it not just politicians that will be considered the enemy. the real solution to this country's economic problems is a controlled crash of the market for about a week. then everything will fall into place and companies will be valued according to their balance sheets. it will also cut out the degenerate gamblers and market manipulators. there is nothing wrong with business as usual as long as it's done with some kind of fairness. the government also needs to get rid of the dark platforms that are used to manipulate the market.
Wonsonlue : Do they think were morons? We're already in a recession, and anyone saying otherwise has an agenda to make you lose your money. These people have crashed the markets and are making the economy seem somewhat sound when all the connecting pieces are falling apart. When they pull the rug everyone gonna wish they bought FOOD AND WATER FILTRATION. If its made anywhere other than the USA DONT BUY IT. We vote with our money and they want to take that power away by forcing us onto digital currency. DO NOT COMPLY STOP COMPLIANCE. JUST SAY NO
Wonsonlue intuitive Jackal_354 : Really, whats going to fix this is a "Controlled crash" you're just plain dumb. Stop voting and that will do more to help the economy than anything you could think up.
intuitive Jackal_354 Wonsonlue : no my friend, evidently you don't know me that well. a controlled crash will bring the market to real values. a revolution against the government is the solution against the root cause, sleepy Joe and his Crack head son. dark pools should be illegal, so they can't manipulate the market. and as we saw in the past 2 elections voting doesn't do anything. case in point Arizona, they were accused of ballot harvesting by Trump. now in the past election they refuse to certify it again.
RJBoy : The market does not seem that it will get any better. Signs of worst time to come is being revealed in the breadcrumbs left by the Feds.
RDK79 : It’s always something bad…
intuitive Jackal_354 70185181 : good answer, the Biden administration has a long history of double crossing everyone. for example hunter Biden selling natural gas to Ukraine at a discount and never delivered. the open border policy that will enslave thr migrants to do cheap labor. also siding with Iran over the Isreal issues. kick backs from special interest groups. and also not regulating crypto currencies. I could go on forever.