In Thursday's podcast we spoke with Bloomberg Intelligence's Chief US Economist Carl Riccadonna who, when asked whether the US may be facing a recession as early as next year, said "I heartily disagree" and believed that this already record-long economic expansion has "several more years" left.
"I think that this economic cycle is on track to potentially be a record-long economic cycle. I'm not seeing the characteristics, in my opinion, that are consistent with late-cycle economic developments and a couple of those characteristics are the following: first of all, interest rates are extremely low.
Normally, as we get late into a cycle, interest rates are not only high but they are close to the pace of growth in the economy. The Fed still has interest rates effectively at zero with the Fed funds rate at 0.37% as we speak so I'll say that's effectively zero and as we look at longer-term interest rates, the 10-year yield is at just 1.8%. So, I don't think interest rates are at a level that they can really slow down the economy.
Mind you, the Fed has to navigate this course very carefully because clumsy monetary policy could induce a recession but also as we look at other parts of the economy, business investment spending, that is typically one of the last engines to fire in an economic cycle has not yet arrived to the party—in fact, is has been contracting over the last couple of quarters.
And, finally, most importantly I would argue, is wage inflation. Typically, as wage pressures increase, the Fed gets nervous and becomes more aggressive with tightening monetary policy and that often reflects the last gasp of an economic cycle. And if there has been one thing that we have continually focused on over the last six years of this cycle is the fact that wages have been stagnant and there's very little wage pressure in the economy and that was largely due to the fact that the unemployment rate had remained elevated.
So, until we start to see the unemployment rate pushing below its neutral level, which is about 5%, and wage pressures accelerate, which in-and-of-itself will give a second wind to consumer spending, I think this cycle will continue to limp along at a trend-like pace in the vicinity of 2%. I think that we have several more years to this economic expansion."