Market Watchers Struggle to Dissect ‘Wacky’ Economic Data

Debates over whether the economy is heading toward a recession and whether that “landing” will be soft or not have almost become a sport for financial advisors and market watchers, with so many forecasts having been way off the mark over the past few years. 

But that reality isn’t yet stemming the flow of outlooks. 

That was on full display Wednesday in Philadelphia at the annual Schwab Impact conference. 

“The economy has been more resilient to rate hikes than anyone expected,” said Sebastien Page, head of Global Multi Asset and chief investment officer at T. Rowe Price. 

“Everybody overestimated the probability of a recession,” he added. 

Page was joined by Omar Aguilar, chief executive and chief investment officer of Schwab Asset Management, in a discussion about Federal Reserve policy, inflation and factors driving the financial markets. 

“The leading indicators that predicted all the recessions we’ve lived through have all been wrong,” Aguilar said, citing economic models that indicated at least two interest rate cuts by the end of 2023. 

In reality, the Fed’s benchmark lending rate is hovering at around 5%, and the notion of another rate hike before any cuts start is not off the table. 

“The data is wacky; this cycle is different than other cycles,” Aguilar said. 

“Rolling Recessions” 

In terms of the forecasts for a recession following the inflation that led to the Fed’s aggressive 18-month rate-hike cycle, Aguilar said there have been “rolling recessions” in several sectors of the economy. 

“A year ago, tech was hit, manufacturing was hit, goods were hit,” he said. “The bigger question mark is, are we going to be able to get back to rolling recoveries by the time services gets hit and labor market slows?” 

One of the things that has caught economists and market forecasters flat-footed was the resilience of the consumer. 

Regarding the strength of the consumer and the potential of consumers to keep spending, Page referenced the nearly $5 trillion worth of cash sitting in checking accounts, compared with less than $2 trillion in 2019. 

“The economy has been more resilient to rate hikes than anyone expected,” he said. 

Battle Against Inflation 

Regarding the Fed’s efforts to battle inflation, Page and Aguilar agreed that the easy part is over and that getting to a 2% inflation target rate might be challenging, if not impossible, at this point. 

“Going from where we are now to 2% inflation will take a long time,” Aguilar said.  

Page, who agreed that the notion of “higher for longer” might not be the worst thing, warned that any movement toward 2% inflation at this point should be deliberate. 

“Be careful what you wish for,” he said. “If we get to 2%, it might be because of a hard landing.” 

Contact Jeff Benjamin at [email protected] and find him on X at @BenJiWriter.