A widely predicted recession never showed up. Now, economists are assessing what the unexpected resilience tells us about the future.

The recession America was expecting never showed up.

Many economists spent early 2023 predicting a painful downturn, a view so widely held that some commentators started to treat it as a given. Inflation had spiked to the highest level in decades, and a range of forecasters thought that it would take a drop in demand and a prolonged jump in unemployment to wrestle it down.

Instead, the economy grew 3.1 percent last year, up from less than 1 percent in 2022 and faster than the average for the five years leading up to the pandemic. Inflation has retreated substantially. Unemployment remains at historic lows, and consumers continue to spend even with Federal Reserve interest rates at a 22-year high.

The divide between doomsday predictions and the heyday reality is forcing a reckoning on Wall Street and in academia. Why did economists get so much wrong, and what can policymakers learn from those mistakes as they try to anticipate what might come next?

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  • terraborra@lemmy.nz
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    9 months ago

    When inflation was above 5% the real interest rate (nominal interest rate minus inflation) was still negative, which is expansionary. Even now that inflation has cooled off it’s still only positive 2% which is not that high by historical standards.

    Couple that with firms reopening, and taking staff off furlough, and it’s not really that surprising that a recession didn’t eventuate. This wasn’t the 70s and early 80s with stagflation.