Strategic Wealth Partners investment strategist Luke Lloyd discusses the biggest risks to the 2023 economy, which could include a mild recession and a credit crunch.
Investor Michael Burry of “The Big Short” fame has issued a grim warning for the US economy: a recession and another spike in inflation are almost certainly on the cards in 2023.
The head of Scion Asset Management – which rose to prominence after successfully predicting the housing crash in 2008 – said on Twitter that even if inflation has peaked, it will likely rise again in part of the same cycle once the economy slows and the Fed decides to cut interest. rates.
“Inflation has peaked. But it’s not the last peak of this cycle,” Burry said in a tweet late Sunday. “We will likely see the CPI drop, possibly negative in 2H 2023, and the US in recession by any definition. The Fed will cut and the government will stimulate. And we will have another spike in inflation. not hard.”
US ECONOMY FACES TURBULENT 2023 AS RECESSION FEARS GROW
Persistent and high inflation has prompted the Fed to raise interest rates at the fastest rate since the 1980s, which threatens to reduce consumer and business spending by increasing borrowing costs. Policymakers have already approved seven consecutive rate hikes in 2022, bringing the federal funds rate to a range of 4.25% to 4.5% – the highest level since 2007 – and forecast a maximum rate of around 5%. %.
Michael Burry attends the New York screening of ‘The Big Short’ at Ziegfeld Theater on November 23, 2015 in New York City. (Photo by Astrid Stawiarz/Getty Images) (Astrid Stawiarz/Getty Images/Getty Images)
Fed Chairman Jerome Powell said the central bank still had work to do on its inflation-fighting campaign, despite early signs that prices were beginning to calm.
Pedestrians near the Treasury building in Washington, DC on December 12, 2019. 30, 2022. (Photographer: Ting Shen/Bloomberg via Getty Images/Getty Images)
“Inflation data in October and November show a welcome reduction,” Powell told reporters in December at the end of the Fed’s policy-setting meeting. “But it will take a lot more evidence to say that inflation is on a sustained downward path.”
Officials also said economic growth will slow sharply in 2023 and unemployment will rise sharply to a rate of 4.6% as rate hikes bring the United States to the brink of a crisis. recession. The Fed expects the unemployment rate to remain elevated in 2024 and 2025 as rising rates continue to weigh on the economy.
FED’S FAVORITE INFLATION GAUGE COOLS DOWN IN NOVEMBER, BUT PRICES REMAIN GETTINGLY HIGH
The probability of a slowdown in 2023 rose to 70% in December, according to a Bloomberg monthly survey economists, against 65% in November. The survey, conducted between Dec. 12-16, surveyed by 38 economists.
Jerome Powell, Chairman of the Federal Reserve, speaks during a press conference following a meeting of the Federal Open Market Committee (FOMC) in Washington, DC on May 4, 2022. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)
Bank of America, Goldman Sachs and Deutsche Bank are among big Wall Street firms forecasting a slowdown next year, though they remain uncertain about its severity.
Again, Powell pushed back on the certainty of a recession, suggesting that lower inflation could increase the chances of a soft landing – the middle ground between curbing inflation without stagnating growth.
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“To the extent that we have to keep rates higher and keep them longer and inflation going up more and more, I think that narrows the track,” Powell told reporters. But weaker inflation readings, if they persist, could certainly make that more possible. I don’t think anyone knows if we’re going to have a recession or not, and if we do, if it’s going to be deep. or not. We do not know.
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