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NY Fed Sees 80% Probability of Hard Landing

hank
edited June 2022 in Other Investing
From Today’s WSJ:

The U.S. economy is very likely on a path to shrink this year and next, a Federal Reserve Bank of New York report said on Friday. According to how the New York Fed models the economy’s path, the report said that “the chances of a hard landing…as occurred during the 1990 recession are about 80%,” while the probability of a “soft landing,” in which gross domestic product essentially remains positive over the next 10 quarters, is 10%.

* The ellipsis marks reflect editing by the WSJ and not by me.

Comments

  • davfordavfor
    Interesting. An 80% probability prediction is more than I would expect to result from a Fed model. Hopefully, it will be mild if it occurs. That's my base expectation......

    The oil price shock caused by the Iraqi invasion of Kuwait is cited here as the "straw that broke the camels back" cause of the 1990 recession.

    Early 1990s recession in the United States

  • Observant1
    edited June 2022
    A "soft landing" is possible but will be very difficult to achieve.
    If the Fed hadn't waited too long to hike rates and start quantitative tightening, this outcome would be more likely. According to Larry Summers, when unemployment is below 4% and inflation is above 4%, a recession occurs within two years.
  • Derf
    Observant1 + 1 - Larry Summers + 1. Maybe this time is different !?
  • Observant1
    edited June 2022
    According to research cited in this PDF, over the past 60 years only one true
    soft landing occurred when the Fed hiked to/above the "neutral" rate.
  • Sven
    It is more of a question of when rather than if a recession will happen. The probability has been ratcheted upward since the beginning of this year. Next is to watch for consumer spending (70% of the economy), layoff and upcoming earnings.

    The next question is how to prepare for it on your asset allocation/investment vehicles so you can survive it better. Challenges today is that the traditional bonds and equities are falling at the same time and there are few viable alternatives.
  • hank
    edited June 2022
    Sven said:



    The next question is how to prepare for it on your asset allocation/investment vehicles so you can survive it better. Challenges today is that the traditional bonds and equities are falling at the same time and there are few viable alternatives.

    I just keep investing as usual - but tack a few extra years on to my investment “time horizon” every time I add another holding. Out to 30 years now, at which time I’ll be 105. Eat well. Keep cycling. Should make it!

  • Old_JoeOld_Joe
    "there are few viable alternatives."
    Well, the returns are not going to be great, but at least safety is guaranteed with the establishment of a CD ladder using CDs offered by FIDC insured banks. The concurrent "10-Year CDs @ 4%" thread discusses some of the aspects of purchasing brokered CDs.
  • BaluBalu
    Fed speeches over the weekend -

    Gov. Waller -

    https://www.reuters.com/business/finance/feds-waller-wants-another-75-basis-point-hike-all-in-inflation-fight-2022-06-18/

    Pres. Bullard -

    https://www.reuters.com/markets/us/feds-bullard-i-hope-us-economy-repeats-outcome-1994s-soft-landing-2022-06-20/

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