The economic expansion in the United States celebrated its ninth birthday last month. If it survives another year, it will be the longest on record.
But eventually something will kill it. The question is what, and when.
While it’s impossible to predict the details or timing of the next recession with any confidence, we can identify some emerging threats to the expansion — and with a bit of imagination, picture how the recession of 2020 (or 2022, or whatever year it ends up being) may unfold.
To be clear, the economy is going gangbusters right now. The nation’s G.D.P. rose at an annual rate of 4.1 percent in the second quarter, the strongest quarter of growth since 2014. But when you speak with some of the people who fret and worry about economic risks for a living, a few factors come up repeatedly.
Perhaps most worrisome, many of the culprits in ending the expansion wouldn’t necessarily arise in isolation. Rather, each one could make the others worse, meaning the next recession might have multiple causes.
So, with a bit of creative license, here are the three most plausible scenarios for the good times to end.
The Wile E. Coyote Moment
The Federal Reserve has had a relatively easy time over the last year or two. Both inflation and employment have been gradually moving toward healthy levels as the Fed has gradually raised interest rates.
The job facing the Fed and its chairman, Jerome Powell, is on the verge of getting trickier. The risk that the Fed will miscalibrate interest rate policy and cause a slowdown or a recession is rising, in part because of the timing of the tax cuts and spending increases enacted this year.
Krishna Guha, head of global policy and central bank strategy at Evercore ISI, has a term for their likely dilemma: the “train wreck 2020” scenario.
The United States economy is either at or near full employment, and inflation is already near 2 percent. With growth still strong, Mr. Guha says, the Fed may soon find itself needing to raise interest rates more aggressively to keep inflation in check.
But at the same time, mainstream macroeconomic models have the economic lift from tax cuts fading sometime between 2020 and 2022. That means the Fed could be raising interest rates to slow the economy just as tax policy is also working to slow the economy.
Both affect the economy with unpredictable lags, so it could prove hard for the Fed to set policies that can prevent both overheating in 2019 and 2020 and a downturn in 2021 and 2022.
“There is probably some kind of perfect path where the Fed could thread the needle on this,” raising rates just enough to prevent overheating but not enough to leave rates so high as to risk a recession once the impact of tax cuts fades, Mr. Guha said. “But what’s the likelihood that you’ll thread that needle? It’s not one you’d want to be betting the farm on.”
The former Federal Reserve chairman Ben Bernanke put it more colorfully at a conference in June. The stimulative benefit of the tax cut “is going to hit the economy in a big way this year and the next year,” he said. “And then in 2020, Wile E. Coyote is going to go off the cliff.”
Pop Goes the Debt Bubble
The last two recessions started with the popping of an asset bubble. In 2001 it was dot-com stocks; in 2007 it was houses and the mortgage securities backed by them.
So it makes sense to look to various markets that might be…