Economic Quick Take
For more than 18 months, we have expressed a view that US recession risks were low until late 2024 or early 2025. That twilight period is now upon us, where economic insulation has largely been exhausted, and the risk of further weakness in the labour market kinking into a negative feedback loop is elevated.
Reflecting developments over the last quarter, we marginally revise the probability of a hard landing in the US economy in the next 6-9 months to 60%, from the previous 70%. Recent payroll strength makes the case for a near term hard landing marginally less likely (explaining the timeframe extension from 6 to 9 months).
But the key change from the last quarter is a seemingly greater appetite for large Fed policy easing, outside of a crisis. The remaining 40% of scenario pathways are split between a soft-landing and the increased chance of inflation re-emerging.
A hard-landing and inflation re-emerging are both negatives for risk assets.
We remain cautious. Please click on the button below for the full quarterly.