Our new economic analysis reveals a dramatic twist in the probabilities of each growth scenario. This amendment makes for a challenging, perhaps inscrutable, tableau going into the next few quarters. The probability of a soft landing is now at its highest in the series, pointing to a growth-resembling expansionary trend. That indicates a positive trend going into the next four quarters. Yet the new data shows the largest drop in this likelihood for the first time since early 2022. This shift underscores the seismic economic transformation we’re all grappling with.
In their baseline forecast, the soft-landing probability fell from 44% to 40% in the first quarter of 2023. In what appears to be a 180-degree turnaround, a reversal in the probabilities of different economic scenarios is now underway. At the same time, recession probability has jumped to 27%, along with stagflation probability has climbed to 28%. Analysts are tracking these numbers like hawks because they hold the key to what’s coming next in our country’s economic story.
The Toolkit for Economic Predictions
Our analysis is based on a deep and wide toolkit that goes beyond predicting the likelihood of soft-landing, stagflation and recessionary episodes. That’s because this framework has been remarkably successful in predicting economic conditions over the entire post-1950 era. The toolkit employs a 33% threshold to identify times of soft landings and recessions. This methodology delivers all-important foresight to inform public policy and empower capital markets with actionable data.
Based on recent Q1 data updates, the toolkit’s forward-looking forecasts have been updated for the next four quarters. The methodology lays out how each scenario is evaluated, providing a deep analysis of the forces at work shaping our country’s economic trajectory. As the probabilities change, knowing what these changes mean will be vital for state, local decisionmakers, and advocates statewide.
Implications of the Probability Shifts
The chance of a soft landing is fading fast. The risks of recession and stagflation are growing, with deepening fears for the medium-term outlook. The sudden about-face on the trajectory of these indicators has sparked debate among economists about how policymakers should respond. The soft-landing scenario still holds the most likely scenario by far. Now we watch and see what kind of effect it’ll have on market confidence and private capital investment decisions.
Additionally, the consideration for a monetary policy pivot in the next two quarters is present in the toolkit. The chance has gone down from 33% to 32%. This dramatic pivot illustrates both the hesitation of central banks to act as they address a radically evolving economic landscape. Policymakers may need to consider these shifting probabilities when formulating strategies aimed at sustaining economic growth while mitigating potential downturns.
Future Outlook and Considerations
While analysts continue to consider what these probabilities mean for our economy, all eyes should continue to be trained on economic opportunity. The rise in the probabilities of stagflation and recession indicate emerging headwinds that may put growth to the test. To protect against this, all stakeholders need to remain vigilant as they monitor these indicators. Their legacy is a daunting influence on economic policy making.
The toolkit’s predictions are a vital tool for building awareness of these advancements. As for the fortuitousness of future historical accuracy, considering the post-1990 era as a threshold of 35% policy change is a generous estimate. This makes the House’s current assessments all the more credible. As economists engage with these trends, they will hopefully balance the toolkit’s findings with what’s happening in the world to inform their analyses.