Senior writer Amelia Thomson-Deveaux explores evidence from a recent study by Loungani et al. who looked at 153 recessions in 63 countries between 1992 and 2014 and found that the majority were missed by economists. Recessions are difficult to predict due to deeply intertwined human psychology and actions, she claims. For instance, when signs such as yield curve inversion emerge, immediate and sometimes rushed policy responses to initial signals ward it off (monetary easing, fiscal cuts). This hinders the ability to predict when a real recession will actually occur.
Why does this matter? The shape of US election could be altered if a recession breaks lose in the middle of a presidential cycle. And 38% of economists in a National Association of Business Economics survey predicted so. This undermines President Trump’s central appeal amidst a stronger economy. However, investors need to be careful not to turn all the recession chat into a self-fulfilling prophecy.
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