I asked @LHSummers today at #WSJCEOCouncil what the odds were now. He sees 30% to 40% probability of recession starting in next 24 months. Soft landing (third option) now just 20% to 25%...(implicitly stagflation 35-50%)...
https://twitter.com/SteveMatthews12/status/1373277276662534144
I noted 10y yields are lower and 5y5yforward inflation breakevens roughly similar to in spring. Summers said: "I think in part that market forecast is wrong. & ... technical factors ... including QE ... rebalancing towards fixed income ... by pension funds... foreign flows."
.@LHSummers says another reason for low yields: "People expect that sooner or later and in some way, possibly involving a serious recession, inflation will be beat out of the system."
.@LHSummers: Low bond yields are "not a judgment that things are under control on the policy path we've been pursuing for the last year and a half. It's a bet that that policy path will change and will change in ways that might involve a recession." #WSJCEOCouncil
Are deficient demand, lowflation, low rates still the main macro challenge? @LHSummers tells #WSJCEOCouncil "Secular stagnation was the issue of the moment in the late 1930s. Once rearmament and WW2 began, and there was a massive fiscal expansion, it was no longer the issue..."
.@LHSummers: "... In the same way, after we've had a 15% of GDP fiscal expansion, secular stagnation is not the issue of this moment.Whether in several years it will again be the issue, I think, is a paramount macro economic question..."
.@LHSummers Whether secular stagnation will return "is a paramount macro economic question...I think that's... probably better than 50/50. But I don't think it's by any means a certainty given the altered posture of fiscal policy &... increased commitments to public investment."
.@jasonfurman notes: "Unconditional probability of a recession in any year is about 15%. For two years about 27%. So 30-40% not that high."
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