Ahead of the highly anticipated Jackson Hole Symposium, a leading strategist has warned of an impending U.S. recession, despite potential Federal Reserve rate cuts.
What Happened: BCA Research predicts an impending U.S. recession, asserting that anticipated Federal Reserve rate cuts will not avert it, CNBC reported on Friday.
Garry Evans, chief strategist of global asset allocation at BCA Research, stated that the economy is showing signs of slowing down, including a “deteriorating” labor market. The U.S. Labor Department reported a rise in the unemployment rate to 4.3% in July, the highest since October 2021.
"Every single one of us now believes there's a recession, and that's exactly the opposite of what the market believes," Evans said.
Evans emphasized that “a few rate cuts are not going to prevent a recession,” noting that it typically takes about a year for rate cuts to positively impact the economy.
"The market believes that the fed fund rate at the end of next year will be 3%. It's currently at 5.3%. That will not happen unless there is a recession," Evans said, according to the report.
He added that the market’s belief in a significant drop in the fed fund rate by the end of next year is unrealistic without a recession.
Traders are closely monitoring the annual economic policy symposium in Jackson Hole, where Federal Reserve Chair Jerome Powell is expected to provide more insights on the interest rate outlook.
Why It Matters: The warning from BCA Research comes amid mixed signals from other economic experts. Recently, Federal Reserve officials have hinted at a potential shift towards lowering interest rates, with Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker both indicating that the central bank might begin easing rates as soon as September.
Despite these signals, Goldman Sachs recently reduced its U.S. recession forecast to 20%, reversing an earlier increase. The investment bank highlighted that recent economic data showed no signs of recession.
However, other experts like Neil Irwin from Axios have pointed out various economic “warning signs” such as rising credit card delinquencies and a lower hiring rate. Irwin noted that while these indicators are concerning, they do not necessarily signal an imminent recession.
Adding to the complexity, economist Claudia Sahm, known for the Sahm Rule, has stated that while the U.S. is not currently in a recession, the elevated risks strengthen the case for the Federal Reserve to consider interest rate cuts.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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