The Recession Still Isn’t Here. Is It Ever Coming?
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What is the main topic discussed in this episode?
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Here's your money briefing for Monday, June 10th. I'm J.R. Whelan for The Wall Street Journal. Are we headed toward a recession or not? Last month's strong jobs figures might cause economists to lean one way, but consumers facing rising prices for things like food, rent, and their morning coffee might feel otherwise.
We all know the economy's slowing. You couldn't have sustained the really eye-popping growth rates that we saw when we reopened from the pandemic in 2021 and 2022. So the question is, we're slowing, but to what?
We'll talk to Wall Street Journal chief economics correspondent Nick Timoros after the break.
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day.
Why did economists expect a recession two years ago when inflation hit 9%?
Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen at schwab.com slash Washington Wise.
Economists and business leaders have warned for some time that a recession is on the horizon, but it has yet to materialize. Wall Street Journal chief economics correspondent Nick Timros joins us. Nick, how long has a recession been seen as a real possibility, and what was it about the economy that was leading officials to feel that way?
A recession has been seen as a real possibility beginning two years ago, because it was two years ago
How did the Federal Reserve's rapid rate hikes in 2022 compare to the 1980s and why did they raise rates so fast?
that inflation, you recall, hit 9% and the Federal Reserve, which is in charge of controlling inflation, began to really jack up interest rates. They raised interest rates at the fastest pace since the 1980s, which was the last time we had inflation this high. And the way that the Fed fixed inflation in the 1980s was to cause a recession. Unemployment went up a lot in the early 1980s. And so the thinking was, oh my goodness, is this what's going to happen again? A lot of people thought that things were out of control and that the only way to restore control was going to be a downturn.
Why has the feared recession not materialized despite a five percentage point rise in short-term rates?
What's the sentiment like now about the possibility of an economic downturn?
A lot of the economists that we pull in our quarterly survey have either pushed out their expectations of a recession, or they've said, you know what, we're not going to have one after all. Recessions happen. They're hard to predict. There are lots of different shocks that can cause them, like a pandemic, as we learned four years ago, and you can't forecast those things. But if you look at the economy right now, it has weathered the five percentage point increase in short-term interest rates by the Fed far better than almost anybody imagined. To the present moment, things are looking a lot better. You can't really say all clear because interest rates are higher than anybody expected they would be a few years ago.
But households and businesses seem to be managing through this process probably better than you would have thought any time in the last year or two.
How are stubborn basics like food and shelter prices affecting consumers even as 12‑month inflation falls?
Inflation has been very stubborn. The rate has come down in recent months, but prices are still rising, especially on basics like food and shelter. Does the pressure on people's wallets concern officials who track the trends in the economy?
The price of everything you buy, and especially the most salient things you buy, like food or coffee, the price of what you're used to paying for a sandwich is a lot higher than it was four years ago. But when we write about inflation, we're looking at the 12-month change in prices. When you hear inflation news on the radio or TV, That's the way it's being measured. And so the 12-month change has come down quite a bit. And there's a disconnect there because people weren't used to prices going up as much as they've gone up. And so it's going to take time for... everybody to get accustomed to the fact that prices are not going to go back down. The price that you pay for your sandwich, your favorite item from the diner, it's not going to go down.
What role do wage gains play in balancing inflation and household purchasing power?
That would be deflation, and that's very unlikely to happen. But the hope here is that prices don't keep going up quite as much as they've been going up.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:01–1:26
2
Why did economists expect a recession two years ago when inflation hit 9%?
1:26–2:09
3
How did the Federal Reserve's rapid rate hikes in 2022 compare to the 1980s and why did they raise rates so fast?
2:09–2:46
4
Why has the feared recession not materialized despite a five percentage point rise in short-term rates?
2:46–3:44
5
How are stubborn basics like food and shelter prices affecting consumers even as 12‑month inflation falls?
3:44–4:40
6
What role do wage gains play in balancing inflation and household purchasing power?
4:40–5:49
7
Why is job growth still strong after the pandemic and which sectors are driving hiring?
5:49–7:47
8
Does the recent 4% unemployment rate signal a cooling labor market or an impending recession?
7:47–8:49
Speakers
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