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Robert Shiller: “Fear Of A Recession In The U.S. Will End Up Causing One”

By Cristian Bustos. Originally published at ValueWalk.

Ten, longest recessions, ever

Robert Shiller, Yale professor and Nobel laureate, believes there is a “good chance” of a recession in the U.S that is, at least in part, the result of a “self-fulfilling prophecy” triggered by growing concern among investors, businesses, and consumers that the same recession will break out —which, paradoxically, makes it more likely.

Robert Shiller’s Take

“Fear can change reality,” said the author of the 2019 book Narrative Economics: How Stories Go Viral and Drive Major Economic Events.

Q1 2022 hedge fund letters, conferences and more

Concerns about a possible contraction have increased recently as inflation has accelerated and the Federal Reserve started to raise rates to control it. Some big companies have already sounded the alarm and markets continue to hover in bearish territory.

Also, a growing number of American households say the economy is headed in the wrong direction. All of that could cause consumers and businesses to cut back and start saving, planting the seeds of a recession.

Shiller believes that the chances of a recession in the next two years are around 50%, a figure “much higher than normal.”

Robert Shiller’s “Housing Bubble” Fears

Robert Shiller believes that the prospect of a rate hike path could lead families to an avalanche of home purchases to set interest rates as low as possible. But once rates reach high-enough levels, buying will slow down and the housing market could start to show signs of strain.

“The idea that we’re in a housing bubble isn’t talked about as much yet, but it’s already coming back.”

The economist also fears that the country will suffer a collective “post-traumatic stress disorder” due to the pandemic. The “very marked” polarization of society, with a very clear dividing line between the two political parties and a growing image that the millions of citizens who support the rival party are “evil enemies of the fatherland”, also increases the risk.

Political strategists under President Joe Biden have complained that the economic pessimism is overdone, given the strength of the labor market, which some economists consider to be the tightest it has ever been.

However, Robert Shiller said rising inflation has more of an impact on the minds of Americans than on the state of the job market.

“Inflation affects everyone,” he said. “Every time they go to the store they see higher prices and they get angry.”

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