The Bloomberg model predicts that the chances of a recession in the US next year are now more than 50pc, while 48pc of Wall Street economists, who as a general rule are far too optimistic, have a downturn in American GDP as their central forecast for the next twelve months.
Nothing is ever completely guaranteed. But a recession now looks more likely than not.
There is no great mystery about why that is happening.
Since the US inflation rate spiked at 9.1pc, the Fed chairperson Jerome Powell has shown his determination to raise interest rates to whatever level is necessary to bring that back under control, and to hold rates for “higher and longer” until prices moderate again.
Higher interest rates create a recession and that brings prices down again. Even if the Fed pauses on rate hikes now, the rise in bond yields will take six months to feed through into demand. By next spring, output will be falling. It could be a shallow recession or a deep one. We may find out soon enough.
It is the impact on the Presidential campaign next year that will surely be worrying Biden’s strategists. Voters rarely reward leaders who deliver negative growth.
The last President to win reelection after a recession in the final two years of their first term was William McKinley back in 1900 (he was assassinated the following year). In the years since then, William Taft was defeated in 1912, Herbert Hoover in 1930, Jimmy Carter in 1980, and George HW Bush in 1992.
There are Presidents who have been elected during an economic crisis, such as Barack Obama, and won reelection. And there are Presidents, such as Donald Trump, who have been defeated even when the economy is doing fine. But there are very few who inherit a growing economy, and are voted back into office when it is shrinking.
How much blame can be laid at Biden’s door? He took over an economy that was recovering at a respectable rate from the Covid pandemic.
Whatever his other faults, Trump’s deregulation, investment zones and significant cuts in corporate taxes had boosted American competitiveness. It was a strong economic legacy.
The bond markets will doom Biden to defeat
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The Bloomberg model predicts that the chances of a recession in the US next year are now more than 50pc, while 48pc of Wall Street economists, who as a general rule are far too optimistic, have a downturn in American GDP as their central forecast for the next twelve months.
Nothing is ever completely guaranteed. But a recession now looks more likely than not.
There is no great mystery about why that is happening.
Since the US inflation rate spiked at 9.1pc, the Fed chairperson Jerome Powell has shown his determination to raise interest rates to whatever level is necessary to bring that back under control, and to hold rates for “higher and longer” until prices moderate again.
Higher interest rates create a recession and that brings prices down again. Even if the Fed pauses on rate hikes now, the rise in bond yields will take six months to feed through into demand. By next spring, output will be falling. It could be a shallow recession or a deep one. We may find out soon enough.
It is the impact on the Presidential campaign next year that will surely be worrying Biden’s strategists. Voters rarely reward leaders who deliver negative growth.
The last President to win reelection after a recession in the final two years of their first term was William McKinley back in 1900 (he was assassinated the following year). In the years since then, William Taft was defeated in 1912, Herbert Hoover in 1930, Jimmy Carter in 1980, and George HW Bush in 1992.
There are Presidents who have been elected during an economic crisis, such as Barack Obama, and won reelection. And there are Presidents, such as Donald Trump, who have been defeated even when the economy is doing fine. But there are very few who inherit a growing economy, and are voted back into office when it is shrinking.
How much blame can be laid at Biden’s door? He took over an economy that was recovering at a respectable rate from the Covid pandemic.
Whatever his other faults, Trump’s deregulation, investment zones and significant cuts in corporate taxes had boosted American competitiveness. It was a strong economic legacy.
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