Tom Barkin, Essay: The Recession Question

“So, data on today’s economy still looks relatively healthy. Tomorrow is of course unclear. Our path forward depends on three significant uncertainties. First, how long will it take the pandemic’s impact on spending, labor supply and supply chains to normalize? Second, how high does the Fed need to raise rates to calm demand, bring inflation down and keep inflation expectations anchored? And third, what other outside forces will push demand and/or inflation up or down?”

“We are out of balance today because stimulus-supported excess demand overwhelmed supply constrained by the pandemic and global commodity shocks. Returning to normal means products on shelves, restaurants fully staffed and cars at auto dealers. It doesn’t have to require a calamitous decline in activity. As for financial markets, they are hardly the whole economy, but even they could benefit from reaffirmation that trees don’t grow to the sky and a reminder that valuations are always worth a fresh look.”