Welcome to the June edition of FAQs and RAQs!
Each month, we answer client questions—some asked Frequently, others Rarely.
FAQ: Is the U.S. economy headed for a recession?
A timely question, especially as investors navigate trade policy shifts and geopolitical tension.
While no one can predict the future, one helpful approach is to compare current events to past recessions.
Here’s what did cause a recession in the past 20 years:
• Banking system and housing market collapse (2008)
• Pandemic-driven economic shutdowns (2020)
Here’s what did not cause a recession:
• Wars in Iraq and Afghanistan (2003–2021)
• U.S. debt downgrade and European debt crisis (2011)
• Fiscal cliff and taper tantrum (2013)
• China stock market crash and yuan devaluation (2015)
• Brexit vote (2016)
• First trade war (2018)
• Russia-Ukraine war (2022)
• 9% inflation and aggressive Fed rate hikes (2022)
• Silicon Valley Bank collapse (2023)
Which list does today belong to?
So far, today looks more like the second list, which is potentially why markets have stayed resilient in recent weeks.
RAQ: With so many false alarms, is the data misleading investors?
Not necessarily, but it may be lagging a fast-changing world.
Here are five traditional economic signals that might fade in relevance:
1. Unemployment Rate
AI could displace jobs and boost GDP. Would that be bearish or bullish? The old rules might not apply.
2. Consumer Confidence
Increasingly reflects political identity more than economic reality. As AI disrupts jobs, confidence may track dislocation, not GDP.
3. Fed Policy
Inflation is already responding to forces outside the Fed’s control: fiscal largess, trade policy, de-globalization. Add AI-driven productivity and alternative currencies, and the Fed’s influence may shrink.
4. Credit Spreads
The U.S. Treasury market has been affected by huge supply, downgrades, and Fed policy have made them a benchmark. More investors will start valuing bonds relative to cross-asset return assumptions, not just government debt.
5. Volatility
Still early, but as AI steers more of the economy, volatility may reflect real-time adjustment. not risk.
Bottom line: Many economic indicators were built for a different era. They may still be useful, but they may no longer be sufficient.
Have a question? Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you.
All investments carry risk, including possible loss of principal. Past performance is not a guarantee of future results.