Despite nearly two years of stagnation Forecasts Powered by the top minds on Wall Street, billionaire investors, and former Federal Reserve officials, the United States has yet to suffer an economic downturn. With a strong job market and fading inflation in the face of sharp interest rate increases, some experts did turned to the upsidearguing that Fed Chairman Jerome Powell could engineer a Soft landing for the economy. Even Fed economists revealed in July that they are no longer the case anticipation the “mild recession” they experienced first and expect in March.
But Jeremy Grantham, founding partner of investment firm Grantham, Mayo, Van Otterloo & Co. (GMO), he believes investors should ignore his more bullish peers and central bankers.
“The Fed’s track record on this stuff is fantastic,” Grantham quipped in a Bloomberg article. interview Thursday. “You’re almost guaranteed to be wrong. They’ve never called a recession a recession, and especially not a recession that followed the great bubbles.”
The veteran investor made his name predicting the 2001 internet crash and the 2008 global financial crisis, but he’s also known for producing some Wrongor at least A premature baby, Forecasts of the market bubble in recent years. He argued this week that rate hikes by the Fed are still working their way through the economy, making it more expensive for households and businesses to borrow, driving down real estate prices, and weighing on growth-focused stocks.
And he warned that this means in the end “that we will face a recession that may extend into the depth of next year and the accompanying decline in stock prices.”
Grantham, a longtime Fed critic, believes central bank officials “pride themselves in inducing bubbles” with near-zero interest rates and aggressive purchases of mortgage-backed securities and government bonds since the global financial crisis, and especially through COVID. But he now argues that the economy is paying the price for his unsustainable policies.
“They get credit for the beneficial effect of higher asset prices on the economy,” he said. “But they never called for credit for the deflationary effect of collapsing asset prices – and they always do.”
For Grantham, years of unsustainable growth in asset prices are largely due to Fed policy and shortages investment In the world’s main raw material production will eventually lead to a new era of the economy.
He warned that “inflation will never be as low as the average of the past 10 years,” pointing to the annual inflation rate of less than 2% in the past decade. We have re-entered a period of moderately high inflation, and therefore moderately higher interest rates. In the end, life is simple: lower rates drive up asset prices; Higher rates push down asset prices.”
Grantham isn’t the only well-respected name on Wall Street with a bearish view of the American economy. David Rosenberg, veteran economist and founder of Rosenberg Research, Tell Bloomberg Friday that we have “the furthest thing in the world from a strong economy.
“The recession has been delayed. It has not been derailed,” he said, noting that, historically, it took about two years for a recession to kick in after the first rate hike by the Fed, and the central bank started the current rising cycle about 16 months ago. .
In recent weeks, Rosenberg has risen again and again warned About the many headwinds of the US economy. He fears that China’s current economic issues – including property calamitythe sky is high youth unemploymentand potentially permanent deflationGlobal economic growth will slow. He also expressed concern that the end of the US Student Debt Relief Program would affect US consumer spending and that fiscal policy would be constrained by the recent Fitch rating downgrade of US government debt.
On Friday, Rosenberg argued that banks raised loan loss provisions — the money they set aside for loan defaults — because they “know what’s coming.”
“We’re not going to get out of this without a recession… It reminds me of the summer of 2007… Everyone was asking, ‘Where is this recession?'” Rosenberg said. Later when the global financial crisis started in December of 2007.
It should be noted, however, that Rosenberg and expect A recession would hit the US economy in 2022, arguing in May of that year that higher interest rates would lead to lower home prices and a “wealth shock” that would lower consumer spending. Rosenberg, like many of his peers, has had to delay the timing of calling a recession over the past year, but remains convinced that the economy will, eventually, collapse under the weight of higher interest rates.
Likewise, he warned Grantham of “epicThe stock market bubble since January 2021 and the United States is on hold recession since early last year. But he, too, was forced to recant his expectations. He now argues that a recession is coming this year.
This story originally appeared on Fortune.com
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