Credit getting tighter. Just wait until the mass defaults begin….’Soft landing calls always precede recessions’

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via Bloomberg:

When everyone expects a soft landing, brace for impact. That’s the lesson of recent economic history — and it’s an uncomfortable one for the US right now.

A summer in which inflation trended lower, jobs remained plentiful and consumers kept spending has bolstered confidence — not least at the Federal Reserve — that the world’s biggest economy will avoid recession.

A last-minute deal to avoid a government shutdown kicks one immediate risk a little further into the future. But a major auto strike, the resumption of student-loan repayments, and a shutdown that may yet come back after the stop-gap spending deal lapses, could easily shave a percentage point off GDP growth in the fourth quarter.

Add those shocks to other powerful forces at work on the economy — from dwindling pandemic savings to soaring interest rates and now oil prices too — and the combined impact could be enough to tip the US into a downturn as early as this year.

Here are six reasons why a recession remains Bloomberg Economics’ base case. They range from the wiring of the human brain and the mechanics of monetary policy, to strikes, higher oil prices and a looming credit squeeze — not to mention the end of Taylor Swift’s concert tour.

The bottom line: history, and data, suggest the consensus has gotten a little too complacent — just as it did before every US downturn of the past four decades.

Terminal clients: Use Bloomberg’s BECO function to explore the live models behind Bloomberg Economics research.

Soft Landing Calls Always Precede Recessions…

“The most likely outcome is that the economy will move forward toward a soft landing.” So said then-San Francisco Fed President Janet Yellen in October 2007, just two months before the Great Recession began. Yellen wasn’t alone in her optimism. With alarming regularity, soft landing calls peak before hard landings hit.

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Investors have shown few signs of panic during current stock market slump. But beneath the surface, signs of stress are emerging that go far beyond the just averted US government shutdown.

 

 

h/t Simian_Stacker