What is the state of our economy today?

People have been calling for a recession for months, but this seems to be the most anticipated recession on record. I think it may be a long way off. Consumer balance sheets remain relatively strong, stronger than seen for most of the period.

I think the labor market is hotter than people expected. Now, over the past eight months, the labor market has added more jobs than expected, one of the strongest streaks on record. And I think we can expect that private consumption, which is the largest part of the economy, will continue to grow rapidly until consumer balance sheets deteriorate significantly.

[But this] It doesn’t mean a recession isn’t coming. There will always be a recession somewhere.

Rodney Ramcharan: Sure, the economy could contract within the next nine months. The president of the New York Federal Reserve Board expects the unemployment rate to rise from his 3.5% now to between 4% and 5% next year. And I think it coincides with the recession.

In terms of how much it could get worse beyond that, much depends. It might depend on whether you’re really committed. So I think it’s a tradeoff.

Will unemployment rise?

empty field: [Unemployment] It hasn’t gone up much and could go up close to 4%. Many people expect him to be around 4.5%. And I think it’s certainly possible. And I think we’ll see a small uptick in the coming months.

But I don’t think it will rise as quickly as some people are hoping. One reason for this is the lack of labor force participation that we have seen so far. I think there will be plenty of jobs until more people enter the labor market.

Interest rate outlook

Ram Charang: I think spending will be curtailed as people find it harder and harder to find a job or start losing their jobs and getting a job harder. We are seeing it now because borrowing costs have risen sharply and the Federal Reserve (Fed) expects it.

The federal funds rate is expected to rise to 5% by next year. Add in a few more points because of the risks involved, and the cost of renting to buy a home can be up to 8% for some. there is.

And the flip side of this for businesses is that cash flow may slow down. If consumers are not consuming, the revenue that businesses rely on to make investments may not exist.

An additional piece to this puzzle is what the bank will do next. I think banks will start to cut back on credit. So not only will interest rates rise for ordinary consumers and enterprises in general, but they are also more likely to experience credit denials, which should start to slow spending considerably.

How are housing prices going?

Ram Charang: As the Federal Reserve cut interest rates, there have been big changes in the population for a variety of reasons. They determined that housing was the right investment or the right thing to do. So if 50 million people collectively decided to buy a home, the supply of homes would be reasonably limited in the short term. . As a result, housing prices and rents have risen significantly.

Over the past three months, the housing market has cooled sharply. House prices are starting to fall now. Going forward, I think the cooling of the housing market will be a major factor in the slowdown in inflation and real estate investment trusts. it is positive.

How will changes in Congress affect the economy?

empty field: Indeed, when Congress is divided, decisions involving the passage of laws that could support the economy are less likely. And I think the Republican House is likely to be a little more conservative on spending.

Therefore, even if we start to see a recession, I think it is unlikely that there will be legislation enacted that will help support an economy that may need it. Work becomes more important.

How certain are these predictions?

Ram Charang: Please note that we want to let our viewers know that we are making these statements based on theory. Because the inflation we are currently experiencing was caused by the pandemic and there is no real evidence and no data available. We can look to people saying, “What will happen to the economy after the pandemic?” That data does not exist.

So we’re trying to piece together the data we have and the theories we have, but there’s a great deal of uncertainty about what will happen.

D. Brian Blank Professor of Finance at Mississippi State UniversityRodney Ramcharan is Economist at University of Southern California.

This article originally appeared in The Conversation, a non-profit news source dedicated to unlocking ideas from academia for the general public.