OPINION: Everyone assumes the advanced economies are falling into recession, but here are three reasons why everyone might be wrong.
LONDON —With so much talk of stagnation, inflation, and stagflation in recent months, it is worth questioning whether the prevailing pessimism is justified. While I have shared in the gloom , I’m starting to reflect on my previous views, for four reasons.
Yet now, even some central banks are openly forecasting a recession later this year. Has economic forecasting suddenly become better, or is something else going on? Inflation may be temporary after all The second reason for my skepticism about the prevailing narrative is that not all medium- and long-term indicators point to sustained higher inflation. The closely watched University of Michigan five-year inflation expectations index may have briefly risen to 3.1%, but it has since fallen back, suggesting that average consumers regard this year’s huge surge in inflation as temporary.
Central bankers can change their minds Finally, in most investment-bank research notes nowadays, there is a strong assumption that central banks will vigorously fight any financial-market SPX, -1.07% rally, because they cannot afford to let financial conditions ease in the current environment of low unemployment, upward wage pressures, and concerns about inflation.
Again, it is too early to be too optimistic. I don’t want to give the impression that recession fears are unwarranted. If the recent dip in inflationary signals and long-term inflationary expectations reverses, I would have to backpedal.
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