The global economy is, to put it mildly, in a state of flux. Before the most recent U.S. elections, it was already being buffeted by geopolitical shocks and the prospect of transformative technological innovations. But now,
it also has to endure an unusually high amount of policy volatility from the world’s most powerful country. The result has been a roller coaster not just for bonds and equities but also for economic forecasters and policymakers.
At a deeper level, this turmoil has called into question consensus narratives about the United States. Long-standing assumptions that underpin the choices households, companies,
and investors make have gone away. Rules of thumb have become far less helpful. Measures of consumer and producer confidence fell off a cliff. Expectations of inflation, meanwhile, surged to levels last seen in 1981.
Amid this deep uncertainty, forecasters have struggled to predict where the U.S. economy will ultimately end up. But two main visions bookend a dispersed and unstable set of individual projections. In the first,
the United States is on a bumpy journey that will culminate in an economic restructuring resembling the ones that took place under U.S. President Ronald Reagan and British Prime Minister Margaret Thatcher,
where it will emerge with less debt and a more efficient private sector and where it will trade in a fairer international system. In the second scenario, the country is slowly slipping into the stagflation and,
as happened under U.S. President Jimmy Carter,could end up in a deep recession, perhaps with pronounced financial instability.
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