The recession that never came, the consumers who won't quit, and why your retirement-age parents might be keeping the economy afloat.
For three years, economists have been predicting a recession that stubbornly refuses to show up. Ed Yardeni, a veteran Wall Street economist who's been analyzing markets for decades, thinks he knows why—and his explanation might surprise you.
The Recession That Wasn't
Remember when the Federal Reserve cranked up interest rates from nearly zero to over 5% in just two years? By all historical measures, that should have triggered a recession. The yield curve inverted (when short-term rates exceed long-term ones), which has been a reliable recession predictor for many decades. Leading economic indicators kept falling. Yet here we are, with the economy still chugging along.
Yardeni calls it the "Godot recession"—the no-show recession that everyone kept waiting for. His reference to Samuel Beckett's play Waiting for Godot (where the main characters wait for someone who never arrives) is particularly fitting. Unlike previous cycles where aggressive Fed tightening crushed the economy through banking crises, this time was different. When three banks did fail in 2023, the Fed quickly provided emergency funding, preventing a broader credit crunch. "The Fed has learned how to play Whack-A-Mole in the credit markets," Yardeni explains.
The Baby Boomer Economy
Here's where Yardeni's analysis gets interesting. He believes the economy's resilience comes down to one massive demographic group: the 75 million baby boomers who are retiring with unprecedented wealth.
American households collectively hold $160 trillion in net worth—and baby boomers control half of that wealth. These aren't your grandfather's retirees scraping by on Social Security. Many are sitting on substantial nest eggs from decades of rising home values and stock market gains.
And they're spending it—not just on themselves, but on their children and grandchildren too. They're helping with down payments, making mortgage payments, and funding everything from ballet lessons to college tuition. "There is money going from the baby boomers to the younger cohorts," Yardeni notes. "They're not waiting to pass away to pass the money on."
This wealth transfer explains several economic puzzles. Why are restaurants, hotels, and cruise lines hiring at record levels? Retired boomers are traveling. Why is healthcare employment booming? Aging boomers need more medical care. Why hasn't consumer spending collapsed despite higher interest rates? Because the biggest spenders aren't borrowing—they're drawing down savings.
The Technology Revolution Continues
Beyond demographics, Yardeni sees technology as a powerful economic force that many observers misunderstand. He argues we're not experiencing a new revolution with artificial intelligence, but rather the continuation and reinvigoration of a "digital revolution" that began with IBM mainframes in the 1960s.
The pattern has remained consistent: process more data, faster and cheaper. We went from mainframes to minicomputers to personal computers to cloud computing—and now AI. Each step follows the same logic and delivers the same economic benefits through productivity gains.
Companies aren't backing down from AI investments despite concerns about costs. During recent earnings calls, major tech companies signaled they have no intention of cutting AI infrastructure spending. For Yardeni, this suggests we're entering another productivity boom that could lift the entire economy.
What Could Go Wrong
Yardeni isn't blindly optimistic. He sees real risks ahead, particularly from government policy and debt levels.
President Trump's proposed tariffs—a 10% base rate on all imports and 30% on Chinese goods—could spark inflation and slow growth by acting as a tax increase. However, Yardeni expects the stock market to look past any near-term stagflation toward stronger growth in 2026.
The bigger concern is America's debt crisis. With the deficit continuing to grow and bond yields rising, Yardeni worries that markets might eventually force politicians to act. Paradoxically, he almost hopes for a debt crisis—not a catastrophic one, but enough to "scare the living daylights out of politicians" into fiscal responsibility.
Looking Ahead
Despite the risks, Yardeni maintains his "roaring 2020s" scenario, giving it 75% odds versus 25% for a recession. He sees the S&P 500 reaching 7,000 by year-end and 10,000 by 2029, driven by earnings growth powered by productivity gains.
His advice for investors? Stay focused on the long term. "Stocks are meant for the long run, so any time you get a meaningful sell-off and you've got some cash, it's a good opportunity to buy some stocks for the long run."
The economy may keep surprising forecasters, but Yardeni's bet is simple: never underestimate the power of 75 million wealthy baby boomers with money to spend and technological innovation to boost productivity. That combination, he argues, might just power America through whatever challenges lie ahead.
Turn Insight Into Action
Curious how shifting economic forces could affect your retirement or investment plans? Call Aspire Planning Associates at (925) 938‑2023 to schedule a personalized consultation with one of our fiduciary advisors. We’ll help you navigate market uncertainty with a strategy that stays focused on your long-term financial goals.
