For the past few weeks, the hottest topic in the business/financial media has been whether the U.S. economy is headed into a recession. Every day, a parade of economists, market analysts and other pundits appear online, on TV and in print to give their view on the likelihood that a recession is on the horizon.
In addition, several major Wall Street investment firms have recently estimated that the odds of a recession occurring in the next several months have increased.
The odds of recession are increasing primarily because the U.S. Federal Reserve is tightening monetary policy in an effort to rein in historically high levels of inflation. Since the beginning of this year, the Federal Reserve Open Market Committee has raised the target federal funds interest rate 2.25%, and it has recently started reducing the size of the Federal Reserve's balance sheet (which tightens financial conditions).
The Committee has also indicated that additional interest rate increases are likely, and most Fed watchers are expecting an increase of 0.5% at the Fed's September meeting.
Marketers need to have a reasonably accurate picture of future economic conditions in order to develop sound marketing plans. As I've previously written, the health of the overall economy is one of the major factors that create the environment in which marketing plans will be executed. And while macro economic conditions affect different kinds of companies in different ways, they will impact the success of marketing efforts at most companies to some extent.
Unfortunately, the outlook for the U.S. economy over the next several months is far from clear. The uncertainty exists for several reasons, including the real-world impact of Federal Reserve's policy decisions, the continuing problems in global supply chains, and a possible energy crisis in parts of Europe this winter.
Given this high level of uncertainty, the best option for marketers is to focus on those future economic conditions that can be predicted with a reasonable degree of confidence. In my view, we can say two things about the direction of the U.S. economy over the next 6 to 12 months.
- Economic growth (as measured by real GDP) is likely to be slow even if we are able to avoid a recession.
- Inflation is likely to be persistent and remain above the Federal Reserve's target of about 2% per year, although there are some indications that we may already be past the peak of inflation.