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Kelly added that the rise of international trade can often offset a slowdown in domestic demand, as companies, enabled by the Internet, can find customers all over the world. He concluded that the growth of the services sector “made the economy more stable and, more importantly, less sensitive to interest rates.”
And throughout the economics profession, many are uneasy.
When assessing the risks of a recession, Thomas Herndon, a professor of economics at John Jay College of the City University of New York, finds little long-term solace in the increasing sophistication of large corporations. He said there are “many, many, many reasons” for recessions — some of which are not directly related to financial instability.
Herndon pointed to the work of 20th-century Polish economist Michal Kalecki, who said business leaders feel “undermined” by maintaining full employment. Kalecki argues that, using their significant influence on policy, they can help institute restrictive economic policies that put an end to times of economic expansion and reset them with a softer, more resilient labor force.
Herndon said he believes the obsession with “bubbles” and “credit cycles” of old also remains a risk.
James Knightley, chief international economist at global bank ING, said eliminating the long-term economic cycle would be the “Holy Grail for central banks.” The Fed's “willingness to use innovative tools” — such as creating informal lending facilities to keep credit flowing on Main Street and manipulating banks' balance sheets since 2020 — gives it “more tools to wiggle to help reduce the chance of a bust.” “The economic downturn,” Mr. Knightley said.
