NEW YORK – Around this time a year ago, about 85% of economists and market analysts – including me – expected that the US and global economy would suffer a recession. Falling but still-sticky inflation suggested that monetary policy would grow tighter before rapidly easing once the recession hit; stock markets would fall, and bond yields would remain high.
- The current baseline for many economists and analysts is a soft landing, where advanced economies avoid a recession but growth is below potential and inflation falls toward the 2% target.
- An upside scenario is one with “no landing”, where growth remains above potential and inflation falls less than markets and the Fed anticipate.
- A downside scenario is a bumpy landing with a short, shallow recession that pushes inflation lower, faster than central banks expect.
Instead, the opposite mostly happened. Inflation fell more than expected, a recession was avoided, stock markets rose, and bond yields fell after going higher.
One therefore must approach any 2024 forecast with humility. Still, the basic task is the same: start with a baseline, an upside, and a downside scenario, and then assign time-varying probabilities to each.
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