Scary Scenario

Aside of a bad Covid recurrence, here’s how a recession could occur. Due to supply chain problems and labor shortages, consumer prices and wage inflation rise quickly, spooking markets. Powell resists raising rates, but the pressure is too great and he caves. In response, equities, bonds, commodities, and other assets decline. This also pushes leveraged firms into bankruptcy, hurts emerging economies, and we accidentally end up in a mild recession.