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Economic outlook: Soft landing or recession?

July 25, 2022
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- Hi, I'm Heather Corkery, Managing Director of Client Portfolio Management at SEI. Today I'm here with Chief Market Strategist and Senior Portfolio Manager Jim Solloway, to provide a quick preview of one of the timely topics he covers in our most recent economic outlook. Jim, Federal Reserve Chairman Jerome Powell still expresses hope that the Fed can achieve a softish landing, presumably where inflation gradually decelerates back to the Central Bank's 2% target without a recession. We certainly hope he achieves this objective. But do you believe it's realistic?

- The historical record is not promising. Based on our analysis data from the Economic Cycle Research Institute and US Bureau of Labor Statistics, there has been only one successful instance since the end of World War II, in 1951 to 1952, when inflation is running above 5%. Federal funds rate futures indicate that investors are anticipating a series of increases between now and year-end that would bring the funds rate to between 3.25% and 3.5%. Markets are presumably pricing in a recession by mid-2023, considering funds futures begin to decline at that point. The actual outcome will depend on how quickly the economy weakens and inflation ebbs.

- Last quarter, you told us that you thought the US economy could show a resilience that surprises both the Fed and investors. Do you think that's still true?

- I continue to think so. There is no denying that rising interest rates will slow economic growth but changes in monetary policy affect the economy with a long and variable lag. While the financial strength of US businesses and households is likely to ebb, the starting point is a very high one.

- Thanks, Jim. Read our latest economic outlook and watch our longer conversation where we address some of the brighter spots of the economic landscape, along with risks, challenges, and uncertainty that investors are facing today.

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