When will the longest expansion end?

Abstract

What might cause the current expansion to come to an end? Without a negative shock, expansions go on and on. The economy is now enjoying even faster growth due to the tax cuts, the bipartisan budget deal, and the increase in the stock market. A reversal of the fiscal stimulus will not bring us to a recession, nor is a stock market collapse patently obvious, and the debt burden is not excessive. However, the Phillips Curve is not dead yet: inflation is on a slow, steady movement upward, and will be above the Fed’s overly benign forecast. How the Fed reacts to higher inflation, and how financial markets react to what the Fed does will determine the severity of the next recession, but there will be recession starting sometime in 2021.