We now know that the economy has started to put on the brakes.
GDP growth slowed in the 1st quarter to 1.1%, the Bureau of Economic Analysis reported yesterday – significantly less than the consensus Wall Street expectation of 1.9%.
At the same time, one of the Fed’s preferred measures of inflation (if not its favorite), the Personal Consumption Expenditures index, headed in the wrong direction to 4.2%, higher than the expected 3.7%.
Some say that suggests the economy has continued to expand amid high inflation and tighter financial conditions, that growth rate isn't sustainable,
Pantheon Macroeconomics’ chief economist Ian Shepherdson believes the economy will slow further as households cash in their savings and more investments while dealing with more challenging financial conditions.
Shepherdson warns that the economy will enter a sharp slowdown over the current quarter, causing GDP to shrink by 2%.
"It would be dangerous,” he said, “to extrapolate that apparent strength in the 1st quarter into an expectation of a decent spring and summer."
Chris Zaccarelli, chief investment officer of Independent Advisor Alliance added, “[Yesterday’s] data was the worst of both worlds, with growth down and inflation up.”
For over a year now, some of the financial world’s so-called best and brightest – billionaire investors, hedge fund managers, and economists – have cautioned that rising rates will eventually trigger a recession.
By Dave Allen for Discount Gold & Silver
We now know that the economy has started to put on the brakes.
GDP growth slowed in the 1st quarter to 1.1%, the Bureau of Economic Analysis reported yesterday – significantly less than the consensus Wall Street expectation of 1.9%.
At the same time, one of the Fed’s preferred measures of inflation (if not its favorite), the Personal Consumption Expenditures index, headed in the wrong direction to 4.2%, higher than the expected 3.7%.
Some say that suggests the economy has continued to expand amid high inflation and tighter financial conditions, that growth rate isn't sustainable,
Pantheon Macroeconomics’ chief economist Ian Shepherdson believes the economy will slow further as households cash in their savings and more investments while dealing with more challenging financial conditions.
Shepherdson warns that the economy will enter a sharp slowdown over the current quarter, causing GDP to shrink by 2%.
"It would be dangerous,” he said, “to extrapolate that apparent strength in the 1st quarter into an expectation of a decent spring and summer."
Chris Zaccarelli, chief investment officer of Independent Advisor Alliance added, “[Yesterday’s] data was the worst of both worlds, with growth down and inflation up.”
For over a year now, some of the financial world’s so-called best and brightest – billionaire investors, hedge fund managers, and economists – have cautioned that rising rates will eventually trigger a recession.
But Fortune’s Will Daniels says the latest GDP and inflation numbers have some experts worried that stagflation – the harmful combo of slow growth and high inflation that crippled the economy in the ’70s – “could be on the menu too.”
Chris Campbell at the global risk consulting firm Kroll and former assistant secretary of the Treasury, says that he still believes a recession will start after July 1st.
Perhaps more importantly, he too is “growing increasingly alarmed about the possibilities that the U.S. might well be facing stagflation.”
And, according to the April Global Fund Manager Survey of too big to fail Bank of America, 86% of fund managers say that stagflation best describes the outlook from the global economy over the next 12 months.
Even though some economists believe the economy can avoid a recession or stagflation, Campbell reminds us that it’s a lagging measure: “I expect that we will see more people unemployed as we get deeper into this calendar year.”
Fed officials have increased their benchmark interest rate from virtually zero last March to a range of 4.75% to 5% to try to rein-in inflation to their 2% target. And it’s almost certainly going 25 basis points higher next week.
Economist Eugenio Aleman at Raymond James is just one of the experts who believes that – given that the latest inflation numbers are still substantially above the Fed’s target.
He added that the recent data “strengthens our conviction that there will be no rate cuts in 2023.”
Zaccarelli endorsed those comments, warning that “the Fed clearly needs to keep raising rates…and they are going to be raising rates right into a slowdown.”
Jeffries economist Thomas Simons also argues that the latest data confirmed that GDP will “start to slow substantially in Q2 and start to contract in the second half [of 2023].”
He added, “Policy drag is about to kick into a higher gear that will unleash a full-blown layoff cycle and recession by midyear.”
And too big to fail Morgan Stanley’s chief U.S. economist Ellen Zentner noted that she expects “to see significant slowing into 2Q23” as tighter money and banking pressures “push growth into negative territory.”
Hold onto your hat. Economic uncertainty is only growing. More volatility is sure to follow. Further, if First Republic Bank fails in the coming days or weeks, things could get a lot worse real fast.
And if Congressional Ds and Rs and the White House fail to agree on a debt ceiling resolution, it probably won’t matter whether a recession or stagflation are worse; all bets will be off.