Are We Getting Close To The Next Recession?

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Whenever a current economic expansion gets near or exceeds its typical term, people start talking about when the next recession will occur. A recession is defined as two straight quarters of economic contraction. Currently, the economy is expanding in the high 2% to low 3% range. Hence, a recession is not likely anytime soon.  

Mortgage rates have risen anywhere from 1.0% to 1.375% in the last year and a half. They are still historically low, especially for how strong the economy is, but their rise has definitely slowed down the housing market. That tends to put a “drag” on the economy, in general, as so many industries revolve around the housing market. The reason why the Fed has been pushing up short term rates, via their bumps to the Federal Funds Rate, is that they fear an unacceptable level of inflation could occur if they did not attempt to slow down the economy. This is a real “catch 22,” so they move delicately, as they don’t want to “kill the golden goose” and put us back in a recession. They seek a “soft landing,” which means that they keep inflation in check (i.e., in the 2.0% annual range) and the economy still grows in a similar range. It is hard to achieve both, but that is what they are attempting to do.  

Right now, the job market is strong, but the rise in rates will slow down the economic engine on more fronts as the cost of borrowing money is higher, and many companies borrow money to expand. In addition this will all start to slow down economic growth. It is hard to tell when the next recession will occur, but two years is probably as good a bet as any right now.