Pressure Testing

In the depths of the COVID downturn and recovery, we made an effort to stop using the word “unprecedented.” While it was true that the economy had never seen such a tremendous contraction and bounce back, the word did not aid anyone’s understanding of how to deal with the crisis. Two years later, as we contemplate the growth outlook, we again are in unexplored territory: Recession fear continues to rise, but the markers of a classical recession are not yet evident.

Our primary source of confidence in growth is the strong state of the labor market. As long as people are working, economic activity will carry on and recession risk is mitigated. Inflation is a growing constraint, placing the expansion at risk. Our base case remains a growth slowdown, but not an outright recession.