Is the US headed for a recession?

This is an audio transcript of the FT News Briefing podcast episode: Is the US headed for a recession?

Marc Filippino
Good morning from the Financial Times. Today is Thursday, April 14th, and this is your FT News Briefing.

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There’s a lot of talk of a recession in the US. Our US financial commentator Rob Armstrong unpacks the debate.

Robert Armstrong
Is the economy so hot and inflation so high that the only way to cool it down is for the Fed to actually force the United States into a recession?

Marc Filippino
We’ll look at a high-tech tactic that Chinese authorities are using to enforce their zero-Covid lockdown. But first, we’ll get a briefing on Moscow’s war in Ukraine and how it’s about to change. I’m Marc Filippino and here’s the news you need to start your day.

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Moscow is shifting its tactics in its invasion of Ukraine. Russian troops have withdrawn from areas around Kyiv in the past couple of weeks. They’ve regrouped in eastern Ukraine, where the country borders Russia. There’s also a new army chief, Alexander Dvornikov. He was brought in to reboot Russia’s military approach after strong resistance from Ukrainian forces. I’m joined now by our defence and security correspondent John Paul Rathbone to find out more. Hi, John Paul.

John Paul Rathbone
Hi, nice to be here.

Marc Filippino
Nice have you. So, John Paul, now that Russian troops are out of Kyiv, what could be next?

John Paul Rathbone
Well, they’ve withdrawn from Kyiv. They’re still around there in the north, around Belarus, and they’re reconstituting themselves for the next phase of the war, which promises to be a very different kind of war. It’s going to be more of a World War 2-style pitch battle in the south of the country around the Donbas region, and that’s going to pit Ukrainian forces against Russian forces in a kind of set piece battle.

Marc Filippino
How does that differ from what we’ve seen so far in this war?

John Paul Rathbone
I think perhaps the most important thought to carry when you look about what might happen is in the first six weeks or so of the campaign, Russia launched multiple advances on various fronts simultaneously, and they tried to achieve simultaneous victories, and instead they ended up with simultaneous failures. And now they’re regrouping their efforts in the Donbas.

Marc Filippino
Right. And this responsibility is under Alexander Dvornikov. He’s an army chief. What do we know about his approach?

John Paul Rathbone
He’s got a pretty standard, high-commanding Russian military profile. His kind of claim to fame was in 2015, when he was the first Russian commander to be dispatched to Syria. He’s a champion of integrated operations, which is a combination of air, ground, navy — the whole kit, all in one go, which is a feature of the Russian campaign that has been very much lacking to date. So his task from Moscow’s point of view is to get all the different pieces of the Russian military acting together in unison at the same time.

Marc Filippino
John Paul Rathbone is the FT’s defence and security correspondent. Thanks, John Paul.

John Paul Rathbone
Thank you.

Marc Filippino
And while Ukraine is bracing for a brutal Russian offensive in the Donbas region, western allies are sending more weapons. Yesterday, US President Joe Biden announced $800mn in additional military aid, including artillery and armoured vehicles. This comes after Ukraine’s President Volodymyr Zelensky asked for heavier weapons to combat Russian tanks and missiles.

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For months now, financial markets have been nervously focused on inflation. Now it’s a recession they’re worried about. Last week, Deutsche Bank became the first big bank to predict a US recession. But are these fears justified? I’m joined now by our US financial commentator Rob Armstrong to unpack the debate. Hey, Rob.

Robert Armstrong
Hey, Marc. How are you?

Marc Filippino
I’m doing well. So Rob, in your column Unhedged you say we’ve crossed a “market-sentiment Rubicon”. What does that mean?

Robert Armstrong
Well, all of this has its roots in Federal Reserve monetary policy. We all know that the economy is running very hot. Unemployment is very low. Prices are rising quickly and the Fed is responding by increasing interest rates. And the question is, is the economy so hot and inflation so high that the only way to cool it down is for the Fed to actually force the United States into a recession, because that’s what policy tightening is. Policy tightening is nothing else than reducing job creation, destroying wealth and generally pouring water on an economy that is burning hot.

Marc Filippino
Now, I’m not going to ask you if you think the US economy is headed for a recession. You’ve admitted that you’re a pessimist, right? So what do economists and analysts have to say?

Robert Armstrong
Larry Summers is a good example. The former Treasury secretary is a good example of the group of economists and market analysts who think that recession is more or less unavoidable. And his argument is when unemployment has been this low and the economy has been running this hot and the Fed is in a tightening cycle in the last 50 years, there’s always been a recession in similar times, at similar moments within two years.

Marc Filippino
OK, so how bad would this be? You know, what would it look like?

Robert Armstrong
Well, it’s always good to remember that the definition of recession is two consecutive quarters of negative economic growth.

Marc Filippino
That is the GDP you’re talking, right?

Robert Armstrong
Yeah, GDP. All right, so it can mean a lot of different things. Because I’m a markets guy, you know, I always think of it in markets terms. Like, not only does the housing market and the stock market respond to economic conditions, they also create economic conditions. So if the market gets the idea, boy, the Fed is really going for it, inflation is not going to get that much better, the Fed’s really going to have to slam on the brakes, we have a war in Europe, etc, and you get, you crack the housing market and or the stock market, that can trigger a broader economic recession just in itself by basically putting everyone into a terrible mood. That said, we have seen some hopeful signs that the economy is cooling by itself just in the last couple of days. And those, in turn, open up the possibility that the Fed won’t have to be wildly aggressive, increasing the probability that they’ll be able to achieve that much hoped for soft landing.

Marc Filippino
Whoa, what do you mean by that? That there were signals in the last couple of days? I mean, the latest monthly inflation report for March came in at eight and a half per cent higher from . . . 

Robert Armstrong
CPI was at eight and a half per cent, but within CPI there were some good signs. Housing was a little, which really surprised me, housing inflation was a little, rent inflation was a little softer than you might have expected. Inflation in used cars and even in new cars got a little bit better. We’re finally getting some easing of supply chains, like trucking rates are going down. In the US, these sort of single data points become a trend. Then maybe everybody takes a deep breath, including the good people of the Federal Open Market Committee of the Fed. And they don’t, they can sort of take their foot off the accelerator gently rather than jamming it on to the brakes. And there is a gentler path towards higher rates and we squeak through without a recession.

Marc Filippino
Yeah, and it seemed that investors noticed all those upbeat data points too. The Nasdaq finished yesterday’s trading day up 2 per cent. So there you go. Rob Armstrong is the FT’s US financial commentator. He also writes our daily markets and finance newsletter Unhedged. Thanks, Rob.

Robert Armstrong
Marc, it’s always fun to talk to you.

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Marc Filippino
Before we go, Shanghai’s 25mn residents remain under strict citywide Covid lockdown. But how do authorities enforce it?

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Marc Filippino
This Twitter post shows commands being barked from a megaphone on the back of a robot dog. Our China reporters inform us that this terrier-sized device roams Shanghai’s empty streets, ordering residents to stay inside, wash their hands and check their temperature. You know, normal dog stuff. Some nights it even marches through apartment corridors, calling residents to come out for mandatory throat swabs.

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You can read more on all of these stories at FT.com This has been your daily FT News Briefing. We’re taking tomorrow off for Good Friday. We’ll be back on Monday, April 18th. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Michael Lello, David DaSilva, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.