The writer is the chief global investment officer at Credit Suisse

In keeping with the good traditions of the financial industry, this is the time of year to speculate on the health of the global economy and what to do with the collective wisdom of investors.

Digging into the economic and investment forecasts of various banks and asset managers, many have noted an overwhelming consensus that a recession will occur next year in the world’s largest economy.

According to this text, a recession in the United States in 2023 should lead to a rapid slowdown in inflation, allowing for Federal Reserve To stop raising prices and then – at a later stage – to start lowering prices to get us out of trouble. This scenario is familiar from the American recessions of the early 1990s, 2001, and 2008. What always follows is a stock market rally, and investors live again for another cycle.

However, it is somewhat inconvenient that both market watchers and market participants are currently converging on this rather optimistic assessment, not least because widely agreed-upon market opinions are usually so wrong. We must be missing something. So, what could go wrong with this text? At what point do we go from “it’s the same this time” to “it’s different this time”?

There are strong reasons to expect consensus. Growth has already slowed rapidly. The Eurozone and the UK are already in recession and growth in the US has slowed considerably. US inflation has peaked and the Fed is determined to battle it out, which means it could drop further. This economic outlook is also priced in steadily by the financial markets.

The most obvious sign is certainly the strongly inverted yield curve where short-term bond prices are higher than longer-term maturities. Since the 1960s, this has been a reliable indicator of an impending recession. At the same time, an inverted yield curve is also a reflection of market participants’ expectations that inflation rates are likely to decline and that the central bank will – at some point – cut interest rates to support growth again or calm market turmoil. Thus, the fact that the curve is so inverted at the moment also means that investors expect inflation to return to normal quickly and that the Fed may be able to cut interest rates sooner rather than later.

However, there are also factors at odds with current consensus expectations that are worth examining. First, when it comes to growth, the US recession could come significantly later than many expect. The US economy is not as exposed to interest rate hikes by the Fed as it was in the past. Nowadays, homeowners mostly have fixed-rate mortgages, and companies have used the low interest rates of yesteryear for long-term financing.

Households and businesses will feel the impact of higher prices later than usual. So while growth is already weak, falling into an outright recession could be like waiting for Godot. This is in stark contrast to the rapid recession/rapid recovery pattern that markets seem to expect.

Second, when it comes to inflation, it may turn out to be more entrenched than expected. Wage growth inflation in particular appears to be steadily due to a shortage of skilled workers. The new multipolar world order will force structural changes on the economy, such as the need to rebuild reliable supply chains closer to home, which often come with higher prices. Likewise, the urgent need to decarbonise can exacerbate “green inflation,” that is, higher prices for environmentally friendly goods and services.

All of this means that inflation rates can come down much more slowly than many of us (including central banks) would like. The Fed may end up in a position where it will have to keep interest rates high because of inflation – even as a recession begins.

This can be negative for stock markets, as the initial market recovery after a recession is often the result of interest rate cuts. The Fed’s “mode” – the Fed’s willingness to prop up markets in times of volatility – will disappear forever, and the way out of recession will be fiscal rather than monetary.

These reasons make the current market consensus very uncomfortable. We risk being in a longer period of weak growth, high inflation and weak equity markets than we have been during previous slowdowns. Thus, investors are advised to keep their portfolios diversified, including a reasonable allocation of fixed income. Alternative investments such as hedge funds or private equity can be a way to manage portfolio risk.

In fact, investors should continue to be cautious next year and act as if the Fed is no longer in place. This means that it is really different this time.