Based on November’s employment report released on Friday, we can safely conclude that there is still no sign of an impending recession. The Godot recession is still a no-show. Our soft-landing (a.k.a. rolling recession) scenario remains intact, as it has since early last year. The diehard hard landers are still expecting a recession, as they have been since the Fed started to tighten in early 2022. But they now expect it in 2024 and mostly think that it will be a shallow recession.
The widely anticipated recession scenario has been based on a very simple and logical premise: The Fed started raising interest rates aggressively last year during May. Short-term and long-term rates have increased by at least 500bps through the summer (Fig. 1 below). That shocking pivot, following a very long period of ultra-easy monetary policy, must be a terrible shock for the economy, the thinking goes. While the “long and variable lags in monetary policy” have turned out to be longer and more variable this time, a recession will surely occur in 2024, the hard landers figure.
Additionally, the hard landers point out: The yield curve has been inverted since the summer of 2022 (Fig. 2 below).