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Economic Commentary

Further rate increases should set the stage for a recession within the next year.

October 28, 2022
illustration of a line graph decline

Further sharp interest rate increases from the Fed in November and December should set the stage for a recession to start within the next year. While a downturn should help to bring inflation back to trend, history suggests that there will be a cost in terms of some job losses and closed businesses. But a likely recession should be shorter and less severe with eventual Fed easing (maybe not until 2024) driving an economic recovery in the years that follow.

Key Takeaways:

  • Job gains slowed again in September, although employer demand remains strong with far more job openings than available workers.
  • Consumer spending has flatlined in recent months as households cut back on discretionary expenditures to afford much higher costs for essential items.
  • Interest rates spiked further as markets factor in higher expectations for near-term Fed tightening. But the yield curve remains inverted over most durations — a historically accurate early predictor of a forthcoming recession.

Equity markets are pricing in elevated recession risks as third-quarter corporate profits took a hit from higher costs and rising interest rates — with most broad equity indices only slightly above year-lows.

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