#: Early cycle, late cycle — what if, this economist asks, we’re not in any cycle at all?

“This is not a business cycle,” says Perkins, now a managing director at TS Lombard, a U.K. research firm.

“Unlike most recessions, the economy did not contract in 2020 owing to some underlying macro imbalance or vulnerability. Policy makers shut the world down to halt the spread of a deadly pandemic. And they used a massive amount of stimulus to prevent the normal business cycle from taking hold,” says Perkins, “putting their economies into a sort of hibernation.”

What’s followed is an economy driven by the course of virus. To Perkins, “it is not even clear whether this is truly a ‘new cycle’ or a continuation of the old one, regardless of what the economists at the [National Bureau of Economic Research] and [Organization for Economic Cooperation and Development] think.”

The NBER said the U.S. entered a brief recession in February 2020 to formally end a 128-month expansion, and that recession, two months later, was over. The OECD in December said economic growth may peak in the coming months, after bottoming out shortly after the coronavirus pandemic reached the West.

The business-cycle view has clouded the inflation debate, he says. Inflation has come from consumers switching from services to goods, plus the various distortions, logistical problems and bottlenecks in supply chains, he says. “Unlike in the textbook business cycle, what happens next to inflation is unclear because it depends on current distortions being resolved (if they are resolved). Will consumer spending patterns return to pre-COVID norms? Will supply chains adjust?”

Opinion: Here’s where the inflation came from in 2021

It’s possible goods demand may soon fall given the accumulation over the past 18 months — which would be rare outside a recession.

What about the jobs market? “Given the rapid ‘recovery’ in employment over the past 18 months, widespread reports of worker shortages, record levels of unfilled vacancies and — in some parts of the world — accelerating wages, it is easy to understand why some investors (and, increasingly, central bankers) think the labor market is also starting to overheat. Yet, again owing to COVID-19 distortions, it is hard to know how persistent these pressures will be,” he says.

He acknowledges that’s not how central bankers see things. “Spooked by the recent trajectory of their economies and aware of the mistakes their predecessors made in the 1970s, the authorities are now pivoting hard toward tighter monetary policy,” says Perkins. “This could be bad news for financial markets. While it is unclear whether central banks really need to squeeze aggregate demand, any attempt to do so must naturally start by inflicting pain on investors.”

Key Words (November 2021): Powell says it’s time to retire ‘transitory’ when talking about inflation — and stock markets tank

Growth stocks have suffered the most on expectations of Fed tightening, though the tech-heavy Nasdaq Composite
COMP,
+0.59%
ended Wednesday just 5% below its record high.