Economics: A roadmap for recession

Whither the monetary transmission mechanism?

The US business cycle has been a source of confusion recently. Why hasn’t growth slowed more noticeably in response to the Fed’s tightening of policy? Has the monetary transmission mechanism changed, or is it just a case of long and variable lags? 

Tracking the early-moving vs lagging parts of the cycle

We’re inclined to think that it’s the lags. Ahead of previous downturns, tightening has shown up first in the money supply, housing, and corporate profitability. This is consistent with the behaviour of the economy over the past year. 

Typical lags would indicate a recession this year

If the economy continues to conform to historical precedent, a recession will be due before the end of this year. It should show up next in consumption of durables and capex spending. If that happens, it will confirm that the lags are behaving as expected.