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The economist David Rosenberg is even more pessimistic, arguing that a recession has already begun. (I featured him in this newsletter in March.) He points to, among other things, the government’s announcement that the U.S. gross domestic product declined at an annual rate of 1.4 percent in the first three months of 2022.

Many economists, along with President Biden, dismissed the first-quarter G.D.P. decline as a brief anomaly. But Rosenberg, president of Rosenberg Research in Toronto, argues that the factors others dismissed as one-time events — the weakening of exports and a slowing of inventory accumulation — are here to stay. “For those economists saying we should ignore the trade sector, try selling the story to a company with a high export orientation and tell me how your black eye feels in the morning,” Rosenberg wrote on Monday.

Rosenberg has a litany of other reasons to worry about growth: The stock market has fallen; the strength of the dollar will hurt exports; inflation is eroding workers’ incomes, which will cause them to spend less; manufacturing and housing are under pressure; and consumer sentiment has weakened.

To be fair, Cutts, Dhawan and Rosenberg are more pessimistic than most economists. Ian Shepherdson, the chief economist of Pantheon Macroeconomics, argues that recessions begin either with balance sheet problems (too much debt) or cash-flow problems (people spending more than they’re earning). Neither is the case now, he said. He’s optimistic that this episode of Fed interest-rate tightening will be more like that of the mid-1990s, when the Fed raised interest rates to choke off inflation without causing a recession.

Higher interest rates will squeeze housing and manufacturing, but those sectors aren’t big enough to bring down the overall economy, Shepherdson argued. He said the preconditions for a recession aren’t present. “Things go to hell when something substantial happens,” he said. “They don’t randomly go to hell.”

Shepherdson could be right, but there are a lot of ways that the Fed’s inflation-fighting campaign could go wrong. Powell acknowledged as much in the news conference on Wednesday, when he said “there’s a path” to success — hardly a guarantee. He also put it this way: “I think we have a good chance to have a soft or softish landing or outcome, if you will.”

Softish would be goodish. In fact, it may be the best we can hope for.




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