|Until last week the strong state of the economy was pushing a possible recession later into the year.
- But: Banking issues have moved it back to the middle of this year.
Why it matters: The problems in the banking sector will spill over into the real economy at some point. The questions are:
1. How long will it take for them to impact economic growth, jobs, and wages?
2. How large will the effect be?
How long a lag: The current issues arose late in the first quarter, so they are unlikely to have a major impact on the overall growth rate.
- In fact, the economy is performing better than most anticipated at this point. Growth could come in at around 2%. That is remarkable considering most analysts are waiting for a recession to start any moment.
Next quarter: Look for the fallout from banking issues to start impacting the economy in the second quarter as businesses, financial markets, and consumers will have had more time to digest how the banking problems impact them.
Be smart: The economy was always likely to slow next quarter because of inflation and rising interest rates. Pinpointing how much of the coming slowdown is because of banking problems and how much would have occurred anyway will be difficult.
Bottom line: A mild, short recession remains the baseline forecast.