The term “pasta bowl recession” describes a unique kind of recession predicted to cool the booming post-Covid economy. Like its namesake, a pasta bowl recession is “low, wide and shallow,” with no dramatic cliffs or spikes.
The term “pasta bowl recession” was coined in a 2022 paper authored by famed economist Sam Snaith. He used the term to describe a new kind of recession he believed would follow the unique economic circumstances of 2022.
During the Covid-19 pandemic, the federal government and Federal Reserve unleashed unprecedented financial stimulus to prop up a dragging economy. When lockdowns lifted, the combination of stimulus funds, rock-bottom rates and quantitative easing sparked an economic boom.
This sudden surge in spending and investment activity powered the economy out of the Covid-19 recession. But while the economy grew, so did inflation, spurred on by:
In response, the Federal Reserve raised interest rates, while economists struggled to decide whether muddled data pointed to continued growth or an inevitable recession. Soon, consumer confidence plunged as corporations and investors grew more skittish.
According to Sam Snaith, this unusual set of circumstances paved the way for a “pasta bowl recession.”
Like a pasta bowl, Snaith believed that the recession would be “low, wide and shallow.” In this kind of recession, economic decline and recovery isn’t particularly sharp. Instead, it begins with a gradual decline into recession (measured by a range of different factors and made official by the National Bureau of Economic Research), with recovery occurring just as slowly.
And while a pasta bowl recession wouldn’t entail any big dips or drops, it could drag on for a bit. (Around four quarters or so.) The ongoing, slow-moving nature of the recession itself is represented by “the wide part of the pasta bowl.”
Technically, a pasta bowl recession is still theoretical. However, Snaith predicts that this kind of slow, shallow recession would come with far fewer economic and personal costs than more dramatic recessions..
In particular, a pasta bowl recession could leave most jobs intact, instead slowing the pace of hiring. Meanwhile, lowered GDP and consumer demand could cool inflation to allow economic troubles (like supply chain issues) to untangle themselves.
For investors, this could theoretically mean mixed news. Despite its shallow nature, such a recession could drag on for a few quarters, potentially stalling investment gains. On the flip side, because economic performance won’t drop off a cliff, some areas of the market may still provide decent returns. (Not to mention cheaper securities in sectors that do struggle.)
Because a pasta bowl recession remains theoretical, it’s difficult to predict how it would actually play out. But even if you can’t predict the future, you can prepare your finances with Q.ai.
Thanks to our AI-backed Investment Kits, you can gird against anything the economy throws at you. From protecting your cash with our Inflation Kit to betting on the Bitcoin Breakout to hedging with precious metals, there’s something here for everyone.
Plus, you can always activate Portfolio Protection as an added precaution.
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