Mid-April State Space: All Still To Play For

Welcome to our State Space series. Here you will find how we’re thinking about the pathways and scenarios that could take us to critical economic states. We will never settle for "it's too unlikely." We try to reason backwards from the most important (tail-risk) scenarios, their most likely pathway to fruition, and the indicators that allow us to monitor the likelihood of each pathway. Updates will share how these pathways are (or are not) playing out, and if new risk scenarios are potentially emerging.

Current Baseline: Growth has been slowing but also stabilizing around a non-recessionary outcome thus far.  Monthly inflation readings will take about 12-15 months to firmly come back to pre-pandemic norms, due to the lag in housing services inflation and still-unresolved goods production challenges. Credit conditions are likely tightening now, but elevated expectations of a more imminent "Fed pause" have helped keep capital market financing conditions on more supportive footing.

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