It’s looking increasingly likely that a recession will be avoided in 2022, despite evidence that growth prospects are weakening.  The jobs report for May showed that hiring is still expanding at a healthy rate. Manufacturing and services sectors although they are in a negative trend are well into expansion territory.  Even the bond market via treasury yields isn’t pricing in an impending recession.  This combined should keep the economy running throughout 2022.

While this is good news, it also means the Fed can continue to rate hikes aggressively to fight inflation.  50 basis point rate hikes in June and July are now almost a given.  After that the Fed is likely to monitor economic activity until the next meeting in September.  As mentioned previously in our column, the Fed must fight inflation and at the same time ensure the economy keeps going, however its tools to fight inflation negatively affect economic growth.  2023 could be another risky year for the economy and financial markets unless inflation can get under control by the end of the year.