After the Federal Reserve Board and Federal Open Market Committee released their economic projections following the FOMC meeting on Wednesday, David Rosenberg issued a strong warning about a potential recession.
What Happened: According to the economic projections, the Federal Reserve’s median expectation for the unemployment rate stood at 4.4% for 2025. The projections from all participants ranged from 4.1–4.6% for the year. The central tendency excluding the three highest and lowest projected rates was between 4.3–4.4%.
Rosenberg, the founder and president of Rosenberg Research & Associates Inc, in an X post, said that these projections gave a clear “signal” that wasn't “noise”. Explaining with an example from 1948 he said that a 100 basis point increase in the unemployment rate from its cycle low has always been followed by a recession, as defined by the National Bureau of Economic Research.
The current cycle low stood at 3.4% of the unemployment rate as of April 2023.
According to him, by the time the jobless rate rises as much as the projected 4.4%, the recession would have already been in play. He said the Fed will need to make significantly more cuts as compared to the two cuts projected in 2025, to address the impending recession.
“The recession nobody believes will rear its ugly head will materialize as early as July. Buy bonds on (price) dips,” he added.
Why It Matters: Senior economist Mohamed El-Erian called Jerome Powell’s use of the word “transitory” to describe the potential inflationary impact of tariffs a “big policy mistake“.
"I would have thought that, particularly after the big policy mistake of earlier this decade and given all the current uncertainties, some Fed officials would show greater humility," said El-Erian referring to the early 2020s.
He also emphasized that businesses and consumers still remember the recent period of "high unanticipated inflation," which could influence their expectations and behavior, potentially leading to persistent inflation.
The Fed’s goals are focused on the dual mandate given to them by Congress: maximum employment and stable prices. Thus, the Fed’s job gets tougher as a likely environment with high inflation, along with high unemployment could signal possible stagflation.
Former Treasury Secretary Lawrence H. Summers called it “the most difficult challenge" faced by the central bank amid higher prices and fewer jobs.
He held the ongoing tariff battle waged by President Donald Trump responsible for this challenging situation, saying, "This is what tariffs do."
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, fell in premarket on Thursday. The SPY declined 0.54% to $564.05, and the QQQ also dropped 0.75% to $477.30, according to Benzinga Pro data.
On Wednesday, the SPY advanced 1.09% to $567.13, and the QQQ also jumped 1.34% to $480.89, according to Benzinga Pro data.
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