The U.S. economy may be on the brink of a recession? Powell needs to be careful tonight!
Investment research institution BCA Research warned that the US economy may be on the brink of a recession. Chief strategist Garry Evans pointed out that the deteriorating labor market and rising unemployment rate indicate an economic slowdown, making it difficult for the expected rate cuts by the Federal Reserve to prevent a recession. Data shows that the unemployment rate has risen to 4.3%, and manufacturing activity has dropped to an 8-month low. Although the market generally believes that the US has not yet entered a recession, a survey shows that about three-fifths of Americans believe the economy has entered a recession
Contrary to popular belief, investment research firm BCA Research believes that the U.S. economy is on the brink of a recession and expects the upcoming Fed rate cuts to be insufficient to lift the market out of recession.
Garry Evans, Chief Global Asset Allocation Strategist at BCA Research, stated in an interview, "Every one of us now believes that the economy is heading into a recession, which is completely opposite to the market's view."
Evans pointed out signs of economic slowdown, including what he described as the "deterioration" of the U.S. labor market. The U.S. Labor Department reported that the unemployment rate rose to 4.3% in July, the highest level since October 2021, while U.S. manufacturing activity index fell to an 8-month low in the same month. The strategist stated, "There are a lot of things falling apart rapidly right now."
Federal funds rate futures tools at the Chicago Mercantile Exchange show that investors expect the Fed to cut rates at least three times before the end of the year. However, Evans mentioned that this would not have a significant impact on his forecast.
He said, "Several rate cuts cannot prevent a recession, with the average recession lasting 10 months... and it takes about a year for Fed rate cuts to actually start boosting the economy."
He added, "The market believes that by the end of next year, the federal funds rate will be at 3%, currently at 5.3%. This scenario will not happen unless a recession occurs."
Generally, when a country's real GDP declines for two consecutive quarters, a technical recession occurs.
Traders are also closely watching the annual economic policy symposium held this week in Jackson Hole, which may provide more clarity on the interest rate outlook. Fed Chair Powell is set to speak at the meeting on Friday.
Despite persistent inflation and high interest rates, the U.S. economy remains robust.
In the last century, the U.S. experienced over a dozen recessions, some lasting a year and a half. While the U.S. has not officially entered a recession, a survey conducted by Affirm shows that about three-fifths of Americans believe the U.S. is already in a recession.