A US recession is inevitable and will be heard in financial markets and corporate America.

It's possible that not necessarily so.

While the danger of a downturn has risen as growth has slowed, most economists argue that a contraction is not likely in the immediate future because of the strength of the jobs market and excess cash on household balance sheets.

They are more worried about next year as the Federal Reserve continues to raise interest rates.

A decline in the economy isn't a slam dunk. The odds of a recession next year are 70% or more, according to an ex-Fed official. He can still see some scenarios that would make him avoid them.

It would take luck and skill on the part of the Fed as it tries to control prices. Success will depend on forces other than the central bank's control.

The worst economic effects of Covid-19 and the war have been assumed to be behind.

We are going to navigate through without a recession. He said that it would be very tight because of the high risks.

There is a lot on the line. Hundreds of thousands of Americans would be out of work if there was a recession. It would cause more trouble for President Joe Biden, who his Democrats are already on the back foot in defending thin congressional majorities in the upcoming election.

Biden’s take

Even though Biden acknowledged that the latest sign of strength in the jobs market is likely to be overshadowed by the pain of high inflation, he still promoted it.

A growth rate that reached the highest since 1984 is starting to show cracks in the economy. New home sales plummeted in April by the most in nine years, as a result of a big jump in mortgage rates engineered by the Federal Reserve.

During the height of the Pandemic, technology companies prospered. Walmart and Target are both cutting their earnings forecasts.

Wall Street was alarmed by that. Corporate bond spreads have widened to reflect the risk of a recession as the stock index has slumped into a bear market.

Corporate leaders are also working the worry beads. Gary Friedman, the head of furniture retailer RH, said this week that he was worried about a downturn.

The global chief economist at the Kroll Institute says that there is no need to worry. The bulwark of the economy, consumers, still have a lot of money built up from earlier in the Pandemic, when they were out of the house and given aStimulus check from the government.

Many are still benefiting from appreciated property valuations. Adding to collective consumer firepower is the rising number of employed people across the economy, with the May jobs report showing a 390,000 gain in payrolls and an unemployment rate that is close to a half century low.

What Bloomberg’s Economists Say...

Household and corporate balance sheets will be positive for the next year. Our model shows that the risks of a recession are high. It is possible to make a soft landing. The base case is difficult to make.

Anna Wong and Andrew Husby are economics professors.

Consumers are able to keep on spending despite higher prices for food, gasoline and other necessities. Consumer outlays increased in April after stripping out inflation.

‘Good Shape’

Moynihan said consumers are in good shape. Is there a way to slow them down? Right now, nothing.

Inflation will keep eating away at households' nest eggs, making next year's outlook more fraught.

"I don't think we're going into a recession in the next year or so." I worry about the 12 months after that.

The fate of the economy in the future will be dependent on inflation and how high the Fed will have to raise interest rates. The inflation measure was more than triple the central bank's 2% target in April.

Fed’s Course

The Fed may need to raise short-term interest rates to get inflation under control. It would be the highest since 2007, and above the Fed's current target range.

The unemployment rate will have to rise in order to relieve inflation in the labor market.

The other side of that trade is taken by Kathy Bostjancic of Oxford Economics. She believes that an influx of workers into the labor force will help alleviate inflationary pressures without the need for the Fed to tighten.

According to surveys and bond-market indicators, investors, consumers and businesses think the Fed can get inflation under control in the future. Policy makers might not need a punishing recession to get inflationary psychology out of the economy.

The task of the Fed will be difficult. Feroli thinks growth will slow to 1% in the second half of the next decade.

He said that the Fed needs to keep growth positive. We have an elevated risk of a recession.