Over at The Hill, I have a new piece discussing the risk of recession.  Here is the fundamental problem that we face:

If the Fed’s contractionary monetary policy does succeed in reducing nominal GDP growth to roughly 4 percent, one of two things might happen. The best outcome would be for wage growth to slow sharply from current levels, which would allow firms to avoid large layoffs. But if wages continue growing at 6 percent while nominal GDP growth slows sharply, higher unemployment is almost inevitable.

I favor a reduction in NGDP growth, despite the risk of recession. I also discuss some recent market indicators of recession:

Today, market indicators are presenting a mixed picture of the risk of recession, with the market consensus viewing one as increasingly likely but not certain. For instance, while stock prices are down sharply, if there actually were a recession, they would probably fall even further. And while interest rate futures markets show rates declining slightly during 2023, if there were a recession, interest rates would probably fall much more sharply — perhaps to zero.

These facts are certainly no reason for complacency. The patterns we see in the markets, including soaring oil prices, falling stock prices and a flattening yield curve, often occur right before an economic contraction.

Read the whole thing.