Wall Street Veteran Who Predicted The 2000 Tech Bubble, 2008 Subprime Crisis, Doubts Fed's Ability To Sidestep Looming Recession

Jeremy Grantham, a Wall Street veteran, voiced skepticism over the Federal Reserve’s optimism in sidestepping an impending recession.

Grantham, known for his often bearish market predictions, expressed these concerns in a recent conversation with David Rubenstein for Bloomberg Wealth.

"The Fed's record on these things is wonderful. It's almost guaranteed to be wrong,” Grantham, co-founder of the Boston-based Grantham Mayo Van Otterloo (GMO) commented when discussing Fed Chair Jerome Powell’s stance on the economic outlook.

Grantham, with his track record of predicting significant market shifts like those in 2000 and 2008, equated the post-COVID-19 pandemic equity surge to the 2000 tech bubble. However, he believes the bubble’s burst has been stalled due to factors such as AI speculation and political economic stimuli, hinting at the upcoming presidential election.

While the post-pandemic era introduced unprecedented market volatility, Grantham’s cautionary stance on the exuberance surrounding AI and its inflated valuations in tech stocks remains. He emphasized this fervor might not shield the U.S. economy from a contraction in the long run.

AI Is Important, But Not Enough To Avoid A Recession

“Personally I think AI is very important," Grantham said. "But I think it's perhaps too little too late to save us from a recession," he added.

Grantham’s past assertions, notably in January 2022, identified the current state of U.S. stocks as the fourth super bubble in a century, with predecessors in 1929, 2000 and 2006. He noted that such bubbles historically revert to the mean, often with prolonged market pain.

The expert forecasted that the S&P 500’s trendline value would hover around 3,200 by year-end, standing over 1,000 points lower than its present level.

“Higher rates push asset prices down. We are now in an era that will average higher rates than we had for the last 10 years," he said.

The SPDR S&P 500 ETF Trust SPY marked its third straight week of losses on Friday.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo: Shutterstock