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Saturday, July 13, 2024

The likelihood of a recession in the US remains higher than the historical average, according to S&P Global

S&P Global projects a 25-30 percent chance of a US recession occurring within the next 12 months, a probability that remains significantly higher than the average likelihood of recession since World War II. According to a statement from S&P Global, they anticipate below-trend growth in the coming quarters, influenced by a diverse set of leading indicators and tight monetary policies.

The potential for any short-term economic boost is constrained by the economy’s inherent growth limits, despite signs of a cyclical recovery in the manufacturing sector. However, these signs are accompanied by conflicting signals. S&P Global highlighted key risks such as geopolitical tensions in the Middle East and the possibility of a resurgence in inflation, which could disrupt the Federal Reserve’s anticipated easing of monetary policy.

Risks could increase considering the ongoing conflict in the Middle East (which currently appears contained but could escalate). Real interest rates are still restrictive by most estimates, and it’s possible that inflation could surprise on the upside for longer. (May inflation out last week was a step in the right direction toward the Fed’s inflation target after several months of not so encouraging data.) If disinflation progress stalls or inflation even starts rising, the Fed may reverse its easing, which would tighten financial conditions and dampen growth. Our dashboard of leading indicators doesn’t quite indicate that the coast is clear, either. Coincident indicators are either in a late cycle or approaching one, which generally means there is limited scope for a short-run cyclical boost to growth.

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