• Recent yield curve steepening has actually reduced the odds of a recession to 12% (Chart 1). This Fed model could well reflect a longer-term view that we will see a sharp recovery later this year. Remember, the curve inverted last year many quarters before today’s recession.
• This idea of a V-shaped recovery is confirmed by the consensus of economists. They assign a 40% chance of a recession and their base case is for zero growth in Q2 before we see recovery in H2 (Chart 2).
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• Recent yield curve steepening has actually reduced the odds of a recession to 12% (Chart 1). This Fed model could well reflect a longer-term view that we will see a sharp recovery later this year. Remember, the curve inverted last year many quarters before today’s recession.
• This idea of a V-shaped recovery is confirmed by the consensus of economists. They assign a 40% chance of a recession and their base case is for zero growth in Q2 before we see recovery in H2 (Chart 2).
• Of course, some economists are more bearish. Take JP Morgan, they see US growth falling by 2% (annualised) this quarter and falling 3% (annualised) in Q2, before we see growth bounce back to 2.5% and 3% in Q3 and Q4.
• It’s also worth noting that both consensus and bearish banks (like JP Morgan) only see a moderate rise in unemployment to where it was last summer.
• Meanwhile, prediction markets continue to increase their odds of a recession – they now have it at 81%.
• We think there will be a prolonged recession and a much larger rise in unemployment.
Chart 1: US Recession Probability Over Next 12m
Source: NY Fed, Predictit, Bloomberg, Macro Hive
Chart 2: US GDP Growth: Consensus Looking For V-shaped Recovery
Source: Bloomberg, Macro Hive
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)