The vibecession* – the deep sense of economic pessimism among consumers, businesses, and the media that set in after the pandemic – might be over. Friday’s University of Michigan survey illustrated a massive improvement in inflation expectations and consumer sentiment, and the San Francisco Fed’s daily news sentiment index has turned strongly upward, putting the three-month moving average very close to positive territory:
This isn’t to suggest that a real recession isn’t around the corner – we still think one probably is – but stories do play a powerful role in determining how markets and economic actors behave. A further melt-up in risk assets looks entirely possible if inflation keeps falling, the Federal Reserve continues to make reassuring noises, and media outlets manage to limit an institutional (and evolutionary) preference for pessimism.
*Term coined by Kyla Scanlon in an August 2022 New York Times article here