The U.S. is hurtling toward a recession. Here’s the best-case scenario for how it could play out—and the worst

Americans are anxious to learn the answers to these critical questions.

But with inflation sitting at a four-decade high, stocks and bonds falling, crypto on the verge of an all-out crash, the war in Ukraine raging on, and the Federal Reserve aggressively raising interest rates, this is one of the most difficult times in history for economic forecasters.

Even Goldman Sachs’ President John Waldron admitted at a June 2 conference that this is “among—if not the most—complex, dynamic environments” that he’s ever experienced.

As a result, investment banks and economists are split on what the most likely outcome will be for the U.S. economy moving forward. Deutsche Bank has argued since April that we’re headed for a “major” recession, but Morgan Stanley’s CEO James Gorman said on Monday the odds of even a minor recession are more like 50-50.

Bank of America believes we will most likely avoid a recession altogether and instead face “extended weakness,” while the economist and Nobel laureate Paul Krugman appeared to side with more optimistic Fed officials on Thursday, arguing that we could be headed for a ”goldilocks” scenario, where economic growth slows enough to cool inflation without instigating a recession.

Fortune spoke with top economic experts about what’s next for the U.S. economy, and we found that although their opinions vary greatly, there are a few basic scenarios that they agree are possible. Here’s how they say things could play out.

Best-case scenario: A soft landing

In a best-case scenario, the U.S. economy would likely experience a “soft landing,” where inflation begins to cool as the Fed raises interest rates, but economic growth continues.

If this happens, we could see the start of a new bull market for stocks sooner rather than later, George Ball, chairman of the Houston-based investment firm Sanders Morris Harris, with $4.9 billion in assets under management, told Fortune.

“If we get what is loosely termed as a soft landing…we probably will see a cessation of the bear market and the start of a new bull market sometime later this year,” Ball said. “It’s apt to take at least six months to know if we are likely to bring down inflation without crippling the economy.”

Brian Vendig, president of the Connecticut-based wealth management firm MJP Wealth Advisors, with roughly $1 billion in assets under management, told Fortune that he sees the soft landing scenario as the most likely outcome in the U.S.

“We don’t think the U.S. economy is going to go into a recession this year,” Vendig said. “We think that the measured path that the Fed is going to take over the course of the year with rate increases, and also some of these other demand-supply imbalances coming a little bit closer to equilibrium, is going to help the economy.”

Still, others argue the Fed’s chances of achieving a soft landing are slim after headline inflation hit an 8.6% annual rate last month and retail sales unexpectedly fell.

“The so-called soft landing is very elusive. I think it’s the most unlikely case,” Dan North, the chief economist at the international insurance company Allianz Trade, who is known for correctly predicting the 2008 recession, told Fortune.

North argues that the Fed has made three key mistakes that will make it difficult to avoid an outright recession.

First, Fed officials kept their easy money policies of near-zero interest rates and quantitative easing for over a year more than was necessary after the pandemic. Second, they claimed inflation was “transitory” for far too long, despite mounting evidence to the contrary. 

Finally, even after they admitted inflation wasn’t going away anytime soon, they failed to change their loose monetary policies for four months, adding to the momentum of already surging consumer prices.

But former Fed Chair Ben Bernanke said he believes a soft landing is still possible on Sunday, or at least a “soft-ish landing.”

“The U.S. economy today is a mixed bag,” Bernanke told CNN’s Fareed Zakaria. “But I think the Fed has a decent chance, a reasonable chance of what Jay Powell calls a ‘soft-ish landing.”’

A ‘very mild recession’

While a soft landing is clearly the most desirable scenario for the U.S. economy over the next few years, even Fed Chair Jerome Powell has admitted that he can’t guarantee that optimistic outcome.

“The question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control,” Powell said in a May interview with Marketplace, noting that “geopolitical events” including the war in Ukraine and COVID-19 lockdowns in China may hinder the economy over the next “year or so.”

Given that $14 trillion in wealth has already been lost in U.S. stocks and bonds this year, according to data from Bespoke Investments, some argue the opportunity for a soft landing has already passed as well. 

And ominous warnings about the possibility for a much more bearish scenario from investment banks, billionaire investors, and CEOs continue to capture headlines. JPMorgan Chase’s CEO Jamie Dimon, one of the most respected names on Wall Street, said at an annual conference sponsored by AllianceBernstein on June 1 that a “hurricane” is on the horizon for the U.S. economy.

“We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself,” he said.

George Ball argued that any economic “hurricane” likely won’t be a devastating superstorm. In his view, the U.S. economy will probably see a “dramatic slowing” where GDP declines modestly for a quarter, but no more than that.

In fact, Ball sees a “very mild recession” ahead, but only because the technical definition of a recession is two quarters of negative GDP growth.

“We’re most apt to see something that, to continue the weather analogy, is more like a tropical storm or a tropical depression,” he said. “It makes the trees sway and a few limbs fall but it’s not life-threatening or dangerous. That’s not a soft landing. But neither is it a catastrophe. ”

Ball added that he believes there is a 60% to 70% chance that we see this type of “very mild recession” sometime in the second half of this year or early next year. For the S&P 500, that would mean a fall to 3,400 by year-end is likely, he said.

Allianz Trade’s Dan North also sees a more mild recession ahead. And he says it’s still months off, too.

“The most realistic scenario, and most likely one, is that we will in fact get a recession starting in the first half of 2023,” North said. “Typically, there are a couple of signs that give off some warnings that are three or four or five quarters ahead of time. And we’re starting to see those signs turn, but they’re not quite there yet.”

MJP Wealth Advisors’ Vendig also pointed out that the economy is “in a better place” than it was going into other recessionary periods in the past. 

“Because of that, I would say, if we were to go into a recession over the next year, it probably would be more on the milder side,” he said.

But a mild recession doesn’t equate to mild inflation.

“We’re probably going to live in a world where inflation is not going to be 2% to 3%, it might be more like 3% to 4%,” Vendig said.

If he’s right, that increases the odds of 1970s-style stagflation. The World Bank warned in its latest global economic forecast that the toxic economic combination of weak economic growth and persistent inflation is a threat to many economies around the world.

Worst-case scenario: A deep recession

While a soft landing or a “very mild recession” are the more likely outcomes for the economy over the next few years, a deep recession is also a possibility, particularly if inflation remains near four-decade highs.

“If inflation continues at an over 6% to 7% rate for an extended period, it will ultimately culminate, I think, in a deep, all-but-devastating recession,” Ball said.

North went a step further, arguing that the Great Recession of 2008 would be “the best analogy in a worst-case scenario.”

“A long recession followed by a long and shallow recovery, that’s possible,” he argued.

But the economist added that there’s a low likelihood of a downturn this bad because global credit markets are in a stronger position than they were a decade-and-a-half ago. If credit does start “drying up,” North argued that the Fed will likely step in and provide liquidity by reinstating its policy of quantitative easing, which “would be a buffer” in any worst-case scenario.

Both Ball and North also noted that the housing market is in a much better position than in 2008, because of stronger fundamentals in the mortgage-backed securities market and new regulations. While housing prices will likely continue to fall, an outright collapse like was seen during the Great Recession isn’t expected, they said. 

A recession, stagflation, or a soft landing? Economic indicators to watch.

As the debate over the future of the U.S. economy rages on, there are a few important economic signposts that investors and consumers should keep an eye on.

PPI feeds into the most important measure of consumer inflation, the Consumer Price Index (CPI), Ball explained, and so far it has remained red-hot. Producers’ prices jumped by a near-record 10.8% year-over-year in May.

Ball added that he often looks at the ratio of job openings to job seekers to determine the health of the economy as well, and rising inventory levels at major retailers could also be something to watch in order to keep track of the health of consumer spending.

North, on the other hand, pointed to the yield curve, or the difference between the interest rates on short and long-term government bonds, as a key recession indicator. When the yield curve inverts, meaning short-term bonds yield more than long-term bonds, it can indicate a recession is on the way.

Consumer sentiment, as measured by the University of Michigan, declined to the lowest point ever recorded in May.

“If consumers are concerned about the future, they’re almost always right,” North said.