The authors argue that the tightening cycle is nearing a third stage, with either an economic downturn or stubborn inflation keeping policy restrictive. They highlight spending near 7%, resilient wages and weakening business funding as signs that a soft landing may remain difficult.
The Tightening Cycle Is Approaching Stage 3: Guideposts We’re Watching
Bridgewater
Aaron Goone, Bob Prince
Article
1 Pages
Key Takeaways
Spending Still Hot: Nominal spending growth stabilized around 7%, versus the 3% to 5% range Bridgewater believes is needed to reduce wage inflation.
Equilibrium Requires Pain: Reaching 2% inflation may require wage growth to fall from 5% to roughly 2.5% and earnings to decline about 20%.
Recession Signal Flashing: Since 1960, all 6 previous negative PCE diffusion readings coincided with growth contractions, with the indicator recently turning negative for a 7th time.
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