Recession 'not inevitable,' Moody's says

Abstract

Dive Brief: The U.S. economy is not headed toward recession even though the Federal Reserve, aiming to quash the highest inflation in 40 years, has raised the main interest rate at the fastest pace since the 1990s and signaled further half-percentage-point increases in July and August, according to Moody's Analytics. "Recession calls are sure to get louder as the Fed continues working to rein in inflation and politicians running in the midterms portray the economy's struggles to their advantage," Zandi wrote in a research note. "The confluence of the number of shocks to the system to me is unprecedented." "We expect there's going to be tougher economic times ahead," Waldron said at an investor conference, citing inflation, reduction in monetary stimulus and Russia's invasion of Ukraine. Tight labor markets and several other forces may spur inflation despite the Fed's efforts, clouding the outlook for the economy, according to Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget. Several factors such as declining equity prices, an increase in the supply of labor and an untangling of supply chains may help slow inflation in coming months, Goldwein said. The Fed's aggressive tightening has worked, bringing down inflation expectations in recent weeks, Zandi said. "With inflation expectations contained, inflation will recede," he predicted, adding that the pandemic will continue to fade "And the worst of the economic fallout from the Russian aggression is behind us." Comparison with past instability in the U.S. economy should also spark optimism, Zandi said.