JULIE HYMAN: There is an interesting note out this morning, Michael, from your peers over at Goldman Sachs, who said because we avoided the debt ceiling situation, they sort of ratcheted down their chances of recession this year. So unless bank stress gets worse and a credit crunch is revealed, it's harder to see where that hard landing risk is coming from at present. There's not a major difference from a macro and markets perspective from a mild recession and a soft landing, and I think that's what financial markets are telling you. So we're maybe half as severe as the average recession.Īnd this is, in part, why using the R word sometimes is a little misleading. I think our peak-to-trough decline rounds up to 1%. So for example, a peak-to-trough decline in GDP and closer to 1.5% would be where the average downturn has been. I think- and I define mild as something less severe than the average recession. So does that mean that we'll be in a mild, from your perspective, or a more severe type of recession experience? But yes, we think more likely than not, we will have that correction in the labor market later this year.īRAD SMITH: And so the labor market, usually kind of the last to realize that we're in a recession. But we've been- at the same time, we have to acknowledge where the data flow is, and that's always been in the direction of resilience. We've never really firmly pounded the table on that other than to say, look, we think some correction of imbalances in the labor markets ultimately will be needed to bring inflation down to 2%.Īnd normally, that does look like an NBER-defined recession at some point. But about as strong as we've ever been on that is to say we think it's just more likely than not. MICHAEL GAPEN: I mean, we're still in the mild recession camp later this year. Where are you on that calculus right now, Michael? The backdrop for this, of course, is economic growth, whether we're going to enter recession this year. JULIE HYMAN: Yeah, and as we know, sometimes it's tough with that kind of nuance for the Fed- for anyone, but for the Federal Reserve where there is so much attention on them. So the trick will be, how do you- how do you balance that message next week? Have you seen enough to tell markets you're ready to do more but just not in June? It's a tricky message to deliver. They've been communicating that, hey, maybe we do have a little more work in front of us. It's pretty clear they're starting to lean in that direction.Īs I mentioned, risk's receding a bit. And what we'd like to do is take the opportunity to look around a bit and assess those lags and assess bank stress and see where the economy is going and make a decision if we need to do more. MICHAEL GAPEN: I think that the decision- I mean, it's tough for them right now because they have said, hey, we've done a lot, and we've done a lot fast by historical perspectives. Is the data suggesting, from your perspective, that there needs to be one solid decision or another from the Fed? I don't think there's much of a disconnect, in my opinion.īRAD SMITH: We've been following all of the moves of the CME Fed watch tool in whether or not there will be a rate hike or not at the next meeting. But I think if you're discussing and debating whether equities are on the edge of a bull market, I think that generally means equity prices are reflecting that broader macro backdrop. It's not getting a lot better but it's not getting materially worse.Īnd underneath that, the employment and other spending data show an economy that's generally resilient. It looks like the bank stress situation is in stasis. That's in part because risks have been reduced. I think you're exactly right in terms of the tenor of the discussion around the macro data has improved. Do you think we have a perception gap right now between the actual data and how it's been perceived? But as we were just pointing out, the market is not quite there on re-entering a bull market. You know, whether you take the jobs report or what have you, I guess what's surprising is the tenor and the discussion around the economic data seems to have improved.
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