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Opinion To avoid recession, everything needed to go right. It hasn’t.

Cranes and shipping containers at a Shanghai port on April 8. (Qilai Shen/Bloomberg News)

In retrospect, we needed to be lucky. Very lucky.

Consumer spending came back really strong as the economy reopened, thanks to months of forced savings and generous fiscal and monetary policy. People clamored to buy houses, cars, sports equipment, waffle irons. That demand pushed up prices, because manufacturers and builders couldn’t keep up. For inflationary pressures to fade on their own — absent severe policy changes, or recession — all the pandemic-driven knots in supply chains had to untangle themselves. Factories and other businesses needed to reopen, and workers had to return to their jobs.

We also needed zero unwelcome surprises. No sudden shocks that might further pummel fragile supply chains. No new disasters, whether man-made or natural. No additional outbreaks, human or zoological.

Instead, we were unlucky ... and lots of things went wrong.

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The U.S. economy shrank at an annual pace of 1.4 percent in the first quarter of 2022, thanks largely to decreases in private inventory investment. Recession risks are rising. Deutsche Bank Research is forecasting a “major” recession by next year, a more dire scenario than its previous prediction of a “mild” recession. To be clear: This projection is an outlier, the most pessimistic forecast on Wall Street, but it’s not implausible. Goldman Sachs and Moody’s Analytics, among others, say there’s about a 1 in 3 chance of recession in the next couple of years.

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There are several reasons recession looks more likely than it did just a few months back.

First and foremost: the Federal Reserve’s interest rate policies.

The main tool the Fed has to reduce inflation is interest rate hikes. These bring down prices by curbing demand. Higher borrowing costs make it more expensive to buy a car or a house, for instance, so eager customers pull back a little. Problem is, it’s hard for Fed officials to calibrate rate hikes so that they’re just sharp enough to dampen spending, but not so sharp that the economy craters.

Historically, most of the times the Fed has raised interest rates to get inflation under control, it (accidentally) tipped the economy into recession.

This time around, Fed officials and outside economic commentators (myself included) have thought there was still a clear path for the Fed to achieve its coveted “soft landing” — that is, cooling down the hot economy without killing it. If supply chains basically went back to normal relatively quickly as businesses reopened, the Fed could hold off on raising rates for a while and let the economy keep booming.

In retrospect, this was much too optimistic. Supply chains remain a mess. Because of the Fed’s tardiness, the central bank needs to raise rates more aggressively to eventually succeed at crushing inflation. Which makes recession more likely.

Meanwhile, other unforeseen shocks are adding to inflationary pressures, which the Fed will also have to confront.

Among them — factor No. 2 — is the latest round of covid-related lockdowns in major manufacturing hubs across China. The Chinese government has shuttered factories and obstructed shipping of cars, electronics and other key consumer products. This will cause shortages and price spikes, increasing inflationary pressures and consumers’ expectations for more inflation in the months ahead.

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Then there’s factor No. 3: the war in Ukraine.

In addition to the immediate, unconscionable losses of Ukrainian lives and freedom, the conflict has also led to major disruptions in energy and food markets worldwide. Oil and natural gas prices have skyrocketed, visiting immediate pain upon the United States and especially Europe.

The consequences for food prices are broader and have not yet been fully felt.

Ukraine is known as Europe’s breadbasket, and the war has disrupted the planting, harvesting and shipping of wheat and corn. Ukraine and Russia usually produce about 60 percent of the world’s sunflower oil, which is used in cooking and many processed foods. In response to shortages, Indonesia has limited exports of another vegetable oil, palm oil. Some supermarkets in Britain have begun rationing sales of cooking oils.

Russia is also usually a major exporter of fertilizer, which is used to grow crops elsewhere, such as Brazil. The war has disrupted that trade, too, putting even more upward pressure on agricultural production costs, and therefore crop prices, around the world. Plus, fertilizer prices were elevated even before the war, thanks to export restrictions that China implemented last year.

Then, finally, factor No. 4: the myriad smaller shocks affecting food prices, including the avian flu, drought in California and self-sabotaging border theatrics in Texas.

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There are almost always disruptions to food production somewhere in the world, of course. Nature is fickle and can be cruel. But these issues are the last problem we need at this particular moment, given all the other extant challenges, at least if price pressures are to fall without requiring the Fed to engage in draconian tightening measures.

Recession is not inevitable. But the outlook is darkening — first because of some poor decisions, and then because of a spate of really awful luck.

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