The post-pandemic US economy has tortured economists and defied expectations. It’s anybody’s guess what happens next. In the optimist camp is Treasury Secretary Janet Yellen, who told CNN’s Fareed Zakaria last week a damaging recession can be averted. “I think what people call a soft landing is possible,” she said. “I do think there is a path to bring down inflation while maintaining what I think all of us would regard as a strong labor market.” After months of inflation at close to 40-year highs, prices are cooling. Readings on consumer and producer prices show inflation at its slowest pace since early in the crisis: The Producer Price Index registered 2.7% annual growth in March, and the Consumer Price Index, at 5%, is down dramatically from its 9.1% peak last summer. And the mighty American job market keeps chugging along. The jobless rate of 3.5% is near the lowest in half a century. By most measures, the job market is stronger today than it was in February 2020, before the Covid pandemic crashed the global economy. More Americans are working, and they are making more money. The Treasury Secretary said she sees rising unemployment claims, declines in job openings and upticks in labor force participation as evidence that stress in a too-tight labor market is easing — a good thing. “I think the strong labor market and bringing down inflation are compatible goals,” Yellen said. Economists at Goldman Sachs are forecasting only a 35% chance of recession, noting “rebalancing of supply and demand is on track.” Fed hikes, bank stress, debt ceiling But there are risks around every corner. A bout of bank stress last month caught global markets by surprise and may act to slow lending activity. Bank strain was a byproduct of the Federal Reserve’s aggressive rate-hike campaign. Monetary policy works with a lag. Now forecasters are struggling to understand how else it will reverberate through the economy, and when. It’s why many economists are firmly in the negative camp. A Bloomberg survey of forecasters pegs recession odds at 65%. The International Monetary Fund last week slightly lowered its global growth forecast, in language more foreboding than usual. “Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled,” the IMF said, noting the difficulty in making forecasts at all in this environment. The “fog around the world economic outlook has thickened,” it said. Adding to the gloom, the debt ceiling drama in Washington, if not resolved, would certainly risk a debt default in the United States, crash the economy and roil bond and stock markets. Climbing a wall of worry Even optimists like Yellen admit there are risks. But resilience in the economy has been hard to keep down. Early into earnings season, the big banks look better than fine, and other companies are beating analysts’ expectations. Oil prices are down sharply compared with last year, in part reflecting global growth concerns — but at the same time lowering costs for oil consumers. And stock markets have climbed a wall of worry, as the old Wall Street trader cliché goes. The Dow is up 2.5% this year, the broader Standard and Poor’s 500 is up more than 8% and the Nasdaq Composite has rallied 16% in 2023. One explanation is that last year’s utter rout in stocks may have factored in a worst-case scenario for the economy. Last year was the worst year for stock investors since the Great Financial Crisis. Another read is that a recession, if there is one, will be mild and brief, without a big spike in the jobless rate. Bottom line: No one knows for sure.