Part of me wonders if this is the consequence of how accessible tech has become, and the prevalence of increasingly non-technical product managers. I'm a former PM, and I'm not here to denigrate the PM role, but the fact that a product like Recall got shipped says a lot about the makeup of the product org that shipped it.
While I get that younger people tend to see privacy differently, I'd argue this isn't really a privacy issue, it's a security conversation, albeit with obvious privacy implications. Leaking what apps I use or what sites I visit is mostly a privacy issue. Leaking what I type into the boxes on those sites is a security issue. If the end result of leaking this info is the attacker can pwn all of my bank accounts, we're solidly into security territory.
The fact that this got shipped means that multiple levels of leadership either didn't think about the consequences or didn't care about the consequences. I hope it's the former, because that means they can learn from the backlash and hopefully recalibrate.
Microsoft is in a position of power that IMO requires a significant duty of care and responsibility to their customers, and lapses like this need to be judged through that lens, i.e. it is their entire business to make sure features like this are safe.