Economist Peter Schiff Warns Of Unhealthy Combo Of Recession With Rising Inflation After Trifecta Of Underwhelming Data

Economist Peter Schiff on Tuesday warned about a potential recession that is looming ahead, accompanied by a rise in inflation – a lethal combo that can put pressure on the economy.

What Happened: Economic reports released on Tuesday showed that the U.S. manufacturing activity contracted more than expected in August and construction activity for July fell more than expected. Citing the data, Schiff said, “It’s becoming clear the #economy is entering a #recession just as #inflation is poised to turn higher.”

This morning has seen a trifecta of weak economic data. Aug. PMI & ISM manufacturing both came out even weaker than expected, while July construction spending unexpectedly fell. It's becoming clear the #economy is entering a #recession just as #inflation is poised to turn higher.

— Peter Schiff (@PeterSchiff) September 3, 2024

The stock market plunged following the release of the sore data, with the decline led by growth stocks, especially the high-profile techs.

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Why It’s Important: Schiff has been flagging a reversal in the direction of inflation, which has seen a downtrend following its spike to a cycle high of 9%+ in June 2022. His premise is that the weakening of the dollar on anticipated interest rate cuts by the Federal Reserve has the potential to push up import prices. This in turn can fan inflationary pressure.

The dollar index, which measures the value of the greenback against a basket of currencies has come off from its mid-April peak above the 106 level. It ended Tuesday’s session down marginally lower at 101.63.

The futures market is currently predicting a 100% probability of an interest-rate cut at the September 17-18 Federal Open Committee meeting, with the odds of a 50 basis-point cut at 43% and a 25 basis-point reduction at 57%.

But Schiff’s recession concerns may be a little farfetched. The second estimate of second-quarter GDP data released by the Bureau of Economic Analysis last week showed the economy expanded at a robust annualized quarter-over-quarter rate of 3%. Consumer spending, which accounts for two-thirds of GDP, also rose at a 2.9% clip.

The labor market, despite the sharp downward revision in job growth, does not wave a red flag.

Those predicting doomsday would argue that most economic data are lagging indicators and may not paint an accurate picture of where the economy is headed in the near term.

All eyes are now on Friday’s nonfarm payrolls report to gauge the economy’s strength through the state of the labor market.

The iShares 20+ Year Treasury Bond ETF TLT, an exchange-traded fund that is considered a recession-proof investment, ended Tuesday’s session up 1.64% at $97.75, according to Benzinga Pro data.

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