Four Scenarios: Recession, Soft Landing, Stagflation, or the Status Quo (2024)

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Four Scenarios: Recession, Soft Landing, Stagflation, or the Status Quo (2024)

FAQs

Four Scenarios: Recession, Soft Landing, Stagflation, or the Status Quo? ›

The economy can be in a recession, when growth falls and eventually pulls inflation lower. It can be in stagflation, when growth falls but inflation remains high. It can be in a soft landing, with cooling growth and inflation. Or it can experience an inflationary boom, when growth is strong and prices rise quickly.

Will there be a recession or a soft landing? ›

Key Takeaways. Fed officials have penciled in higher economic growth and lower unemployment in the years ahead than when they last made predictions in December. That scenario would be a historically rare "soft landing" from the high inflation that flared up in 2021.

What is the stagflationary scenario? ›

Stagflation signifies an economic scenario marked by a simultaneous occurrence of stagnant economic growth, high inflation rates, and increased unemployment levels. This situation runs counter to the typical economic trend where robust growth and low unemployment coincide with moderate inflation.

What is the difference between a recession and a stagflation? ›

Conversely, recessions usually slow inflation. Stagflation refers to the rare and puzzling phenomenon of a recession coinciding with prolonged high inflation.

Can stagflation lead to a recession? ›

Stagflation increases challenges for an economy to operate smoothly because slower economic growth, higher prices of goods and increased unemployment add more difficulties for an economy. It means that stagflation is directly and indirectly related to the lower performance of an economy and recession.

Is 2024 a soft landing or recession? ›

“If the economy remains strong, that could mean that inflation actually does not come back down as quickly as we thought,” Aliaga-Diaz said. Vanguard no longer has a recession as a baseline for 2024, according to its latest forecast, though it projects a soft landing could still happen.

What is a soft landing scenario? ›

If the Fed raises interest rates a lot, it may cause a recession – known as a hard landing. However, if the Fed can raise interest rates just enough to slow the economy and reduce inflation without causing a recession, it has achieved what is known as a soft landing.

What is a real life example of stagflation? ›

Though stagflation is rare, it has occurred in the past. The best-known example came during the oil crisis of the 1970s. The Organization of Petroleum Exporting Countries (OPEC) had embargoed oil exports to Western countries that had backed Israel in the Yom Kippur War against Syria and Egypt.

Are we in stagflation now? ›

While it's unlikely that the U.S. economy is headed for another bout of stagflation, it's important to contextualize what's happening with the prominent episode of stagflation in the 1970s.

In which situation would stagflation exist? ›

Explanation: Stagflation refers to the situation when the economic output does not grow or grow at a slower rate than the increase in the price level. Therefore, it is the situation when price increases and output decreases.

What's worse stagflation or recession? ›

Stagflation is a situation where the economy is not growing, but prices are rising, and there is high unemployment. Stagflation is generally considered worse than a recession because it is a much more challenging economic condition to manage.

What makes money during stagflation? ›

Commodities. Commodities are the raw materials that are used to make other products. During stagflation, agriculture and oil commodities, in particular, may be poised to outperform stocks and bonds.

Why is stagflation worse than inflation? ›

Stagflation is a stagnant economy combined with high inflation. Stagflation amounts to a killer combination and can result in an economic downturn in which bills and the cost of living keep rising.

How do you survive stagflation? ›

When stagflation occurs, don't panic, sell your stocks and bonds and invest in rare art, gold, or other unusual commodities. Stagflation is not a good reason to completely abandon a sound investment strategy.

How long did 1970s stagflation last? ›

Economists have shown that stagflation was prevalent among seven major market economies from 1973 to 1982. After inflation rates began to fall in 1982, economists' focus shifted from the causes of stagflation to the "determinants of productivity growth and the effects of real wages on the demand for labor".

Who wins in stagflation? ›

According to the Bureau of Economic Analysis, annualized real GDP growth surged to 5.2% in the third quarter of 2023, signifying the swiftest rate of expansion since Q4 2021. Stagflation tends to favor defensive companies, those providing essential products and services for people's daily needs.

Will US go into recession 2024? ›

While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”

Has there ever been a soft landing in the economy? ›

Not every monetary tightening has resulted in a recession. Fed Chair Jerome Powell has pointed to soft landings after monetary tightening in 1965, 1984, and 1994. Those episodes were arguably less challenging than the current one, however.

How likely is a recession in 2024 in USA? ›

How likely is a recession in 2024? Overall, neither Faucher nor Daco are forecasting that a pullback in consumer spending will trigger a downturn. As long as incomes continue to grow solidly, the savings rate can increase even as consumption also rises, they say.

Where is the economy headed in 2024? ›

S&P Global Ratings expects U.S. real GDP growth of 2.5% in 2024 as the labor market remains sturdy. We continue to expect the economy to transition to slightly below-potential growth in the next couple of years.

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