11 Jul 2023 | News & Feature

Yield curve inversion: One year on Part 1 On recession: False alarm or Cassandra warning?

  • The disinflation process in the US throughout 2023 is largely thanks to improvements in the supply condition, suppressing inflation expectations in the US to a degree without thus far plunging the economy into a recession.
  • Pandemic tailwinds and still-ample liquidity within the system help the US economy to defy the recession expectation as the now-positive real wage growth help to bolster US consumers’ purchasing power while the positive wealth effect encourages further consumption.
  • The declining appetite for expansion among businesses in the US signals that the US economy remains exposed to the threat of a recession, which could be exacerbated by the risk of over-tightening following the Fed’s adherence to the 2% inflation target.