While there’s agreement that the Federal Reserve needs to continue to aggressively pull back support for the economy to tamp down decades-high inflation, traders have been increasingly concerned that the central bank could accidentally go too far, triggering a new wave of job losses and throwing growth into reverse.
But Fed officials themselves don’t see this outcome as inevitable. Even as the market churns, they maintain that a so-called “soft landing” — where the central bank succeeds in bringing down inflation without tipping the economy into recession — remains possible.
Daly said that unemployment is likely to tick up, though “nothing at the proportions like we’ve seen in what people would think of in a recession.” She noted that the current unemployment rate of 3.6% is near historic lows, so a slight increase wouldn’t lead to widespread hardship.
He said the US economy might grow by about 1% to 1.5% for a year, significantly lower than the 5.7% growth posted in 2021.
“But that’s not a recession,” Williams continued. “It’s a slowdown that we need to see in the economy to really reduce the inflationary pressures that we have and bring inflation down.”
My thought bubble: The next 12 months will produce a lot of debate about what technically constitutes a recession (the official designation would come from the National Bureau of Economic Research). It’s a loaded term, especially ahead of elections in November.
But what matters the most right now is the magnitude of any downturn. We know the economy is likely to slow sharply as the Fed tries to put a lid on price increases. But will we actually see the US economy shrink? And if so, by how much? The size and duration of any contraction — and whether that has knock-on effects, like loan defaults —will be significant.
For now, investors appear more bearish than economic policymakers. The S&P 500 slid on Tuesday after new data showed US consumer confidence faltering. Short-term expectations for income, business and labor market conditions dropped to their lowest level since March 2013.
Nerves may not be a bad thing, however. If a recession is mostly priced into assets like stocks, they could stabilize in the second half of the year.
Disney CEO Bob Chapek receives new 3-year contract
The decision by the board to grant Chapek a new three-year contract was unanimous, the company said Tuesday.
“In this important time of growth and transformation, the Board is committed to keeping Disney on the successful path it is on today, and Bob’s leadership is key to achieving that goal,” Chair Susan Arnold said in a statement.
Step back: Chapek took over from legendary CEO Bob Iger in February 2020. From the start, he didn’t have an easy time. Disney was battered by the pandemic, which forced the closure of parks and delayed the release of blockbuster films.
Then, this past March, Disney found itself at the center of a political firestorm over the company’s response to the “Don’t Say Gay” bill in Florida, where it has 75,000 employees.
Chapek did not directly condemn the “Parental Rights in Education” bill, which would ban the state’s educators from discussions about sexual orientation and gender identity in classrooms. That triggered a backlash from workers.
Chapek apologized for the tepid response — but that then opened the door to a showdown between Florida’s governor and the company.
Investor insight: Disney shares hit an all-time high in 2021 as Wall Street got excited about the pandemic recovery. But they plunged again as markets slumped this year, dropping 38% so far in 2022.
Investors have been worried about what’s next for streaming services like Disney+ as households search for ways to cut costs. But unlike Netflix, Disney+ added subscribers in its most recent quarter.
China’s ‘big shift’ isn’t a game changer yet
The park will resume operations with “limited daily capacity and enhanced health and safety protocols.”
Big picture: The announcement comes shortly after China halved quarantine times in a major Covid policy shift. International travelers will now be required to spend seven days in a centralized government quarantine facility, plus an additional three days isolating at home. Previously, the requirement was at least 14 days in a government facility and seven at home.
The rule change marks the first time China has cut quarantine on a national level since the start of the pandemic. President Xi Jinping has pursued an aggressive “zero Covid” policy aimed at eradicating all infections.
“The first easing in international travel restrictions in more than two years marks a big shift in China’s Covid doctrine, increasing our conviction of an exit from Covid zero by the turn of the year,” Morgan Stanley analysts said in a report on Tuesday.
But the outlook for economic growth in the country remains hazy without a clear path forward.
“Residents still risk being put under the lockdown suddenly and mass testing repeatedly,” said Ken Cheung, chief Asian foreign exchange strategist for Mizuho Bank.
Up next
Also today: Central bank leaders including Fed Chair Jerome Powell speak in Sintra, Portugal at 9 a.m. ET.
