Why So Many People Got This Year's Economy Wrong

This podcast episode examines the unexpected economic trends in 2023, including the persistent resilience of the economy despite recessionary predictions, discusses recession models' evolution and projections, analyzes monetary policy's impact on labor and credit markets, and assesses the ongoing disinflation and the Fed's policy implications. Takeaways • Models used for economic forecasting, like Bloomberg Economics' recession model, incorporate yield curve spread, sentiment models, and LEIs to make predictions, but their projections are subject to change as events unfold. • The length of time it takes for rate hikes to affect the economy varies across models and depends on factors like monetary policy transmission mechanisms and the size of the private credit market. • Headline inflation has declined, but core inflation remains high, suggesting the Fed should not prematurely declare victory over inflation. • Unemployment inflows and outflows can serve as leading indicators of economic downturns, signaling potential recessions early on, especially when inflow rates outpace outflows. • Current economic conditions indicate a potential downturn and a possible recession starting as early as October 2023, but a soft landing remains possible with early and aggressive rate cuts by the Fed. • 2023 stands out for its unexpected economic developments, such as a strong stock market, stable mortgage rates, and a resilient labor market amidst recession fears.