### Summary
Investor Jeremy Grantham warns that the U.S. will experience a recession next year due to the Federal Reserve's interest rate hikes and unsustainable asset prices.
### Facts
- Grantham believes the Fed's previous predictions and actions have been wrong, and it has failed to predict recessions in the past.
- He argues that the economy is still feeling the impact of the Fed's interest rate hikes, which are increasing borrowing costs and depressing real estate prices.
- Grantham criticizes the Fed for stimulating asset price bubbles with low interest rates and aggressive purchases of securities.
- He predicts that the unsustainable growth in asset prices and a lack of investment in key raw materials will lead to a recession.
- Economist David Rosenberg shares Grantham's bearish outlook and warns of headwinds to the U.S. economy, including China's economic issues and the end of the U.S. student debt relief program.
- Both Grantham and Rosenberg have had to push back their recession predictions but remain convinced that rising interest rates will eventually lead to an economic downturn.
The U.S. economy is forecasted to be growing rapidly, which is causing concern for the Federal Reserve and those hoping for low interest rates.
The US economy has exceeded the Federal Reserve's estimate of its growth potential in recent years, with growth averaging 3% under President Joe Biden, but concerns about rising public debt and inflation, as well as the Fed's efforts to control them, may lead to slower growth in the future and potentially a recession. However, there are hints of improving productivity that could support continued economic growth.
U.S. economic growth may be accelerating in the second half of 2023, defying earlier recession forecasts and leading to a repricing of long-term inflation and interest rate assumptions.
The majority of economists polled by Reuters predict that the U.S. Federal Reserve will not raise interest rates again, and they expect the central bank to wait until at least the end of March before cutting them, as the probability of a recession within a year falls to its lowest level since September 2022.
The US economy continues to perform well despite the Federal Reserve's interest rate hikes, leading to questions about whether rates need to be higher and more prolonged to cool inflation and slow growth.
Despite the optimism from some economists and Wall Street experts, economist Oren Klachkin believes that elevated interest rates, restrictive Federal Reserve policy, and tight lending standards will lead to a mild recession in late 2023 due to decreased consumer spending and slow hiring, although he acknowledges that the definition of a recession may not be met due to some industries thriving while others struggle.
Federal Reserve Bank of Philadelphia President Patrick Harker does not believe that the U.S. central bank will need to increase interest rates again and suggests holding steady to see how the economy responds, stating that the current restrictive stance should bring inflation down.
Two Federal Reserve officials, Boston Fed President Susan Collins and Philadelphia Fed President Patrick Harker, suggested that the Fed may be nearing the end of interest rate increases, although Collins did not rule out the possibility of further hikes if inflation doesn't decline.
Cleveland Federal Reserve Bank President Loretta Mester believes that beating inflation will require one more interest-rate hike and then a temporary pause, stating that rate cuts may not begin in late 2024 as previously thought.
The former president of the Boston Fed suggests that the Federal Reserve can stop raising interest rates if the labor market and economic growth continue to slow at the current pace.
BlackRock's Rick Rieder suggests that the Federal Reserve can now end its inflation fight as the labor market in the US is cooling down after gaining 26 million jobs in the past three years.
Leon Cooperman, billionaire investor and founder of Omega Advisors, believes that a US recession is still possible without higher interest rates, and warned of various risks that could trigger it, including the Federal Reserve's tightening campaign, rising oil prices, and the US dollar. He also expressed skepticism about the stock market reaching new highs and advised investing in cheap stocks with share repurchase programs. Additionally, Cooperman compared Nvidia's current stock boom to the 2000 bubble surrounding Cisco.
Treasury Secretary Janet Yellen states that U.S. growth needs to slow to its potential rate in order to bring inflation back to target levels, as the robust economy has been growing above potential since emerging from the COVID-19 pandemic. Yellen also expects China to use its fiscal and monetary policy space to avoid a major economic slowdown and minimize spillover effects on the U.S. economy.
The Federal Reserve is expected to keep its benchmark lending rate steady as it waits for more data on the US economy, and new economic projections suggest stronger growth and lower unemployment; however, inflation remains a concern, leaving the possibility open for another rate increase in the future.
The Federal Reserve will continue raising interest rates until inflation decreases, even if it means more people losing their jobs, according to CNBC's Jim Cramer.
The Federal Reserve has paused raising interest rates and projects that the US will not experience a recession until at least 2027, citing improvement in the economy and a "very smooth landing," though there are still potential risks such as surging oil prices, an auto worker strike, and the threat of a government shutdown.
Hedge fund titan Bill Ackman warns that long-term rates are expected to rise further, urging investors to remain short bonds due to inflation, rising energy prices, and increasing supply and decreasing demand of US government paper.
Billionaire investor Bill Ackman expects 30-year interest rates to increase further and sees inflation remaining high, while his hedge fund remains short on bonds.
J.P. Morgan strategists predict that the Federal Reserve will maintain higher interest rates until the third quarter of next year due to a strong economy and continued inflation, with implications for inflation, earnings, and equity valuations as well as potential impact from a government shutdown.
Bank of America CEO Brian Moynihan believes that the Federal Reserve has successfully tamed inflation but warns that factors like the strength of US consumers may lead to higher interest rates; however, Moynihan expects the US to avoid a recession and experience slow GDP growth in the coming quarters.
Billionaire hedge fund manager Bill Ackman believes long-term Treasury yields could reach 5% as stubborn inflation persists and the Federal Reserve struggles to lower it, with high energy prices and a resurgent labor movement contributing to the issue.
Financial risk strategist Larry McDonald warns that a slowdown in the economy and increasing debt levels may force the Federal Reserve to reconsider its strategy of hiking interest rates, potentially leading to a big debt default cycle next year, and advises investors to shift their focus from growth stocks to hard assets and commodities such as "sexy metals" like uranium and copper, as well as real estate and art.
Bill Ackman warns that the U.S. economy is slowing down due to aggressive rate hikes and high real interest rates, which could lead to a challenging period for investors in the commercial real estate market.
The Federal Reserve will continue to raise interest rates as inflation resurfaces, according to Wall Street investor Caitlin Long, with big corporations benefiting while other sectors of the US economy are already in recession.
Bill Ackman, the founder of Pershing Square Holdings, has shifted to a long-term buy-and-hold strategy, focusing on stocks such as Universal Music and Alphabet, and has outperformed 99% of similar funds since 2018.
Bill Ackman, the billionaire investor, believes that businesses with pricing power will perform well in today's market, even with higher inflation, and highlights Google, Universal Music Group, Restaurant Brands, and Hilton as examples of stocks that fit this criterion.
Billionaire investor Bill Ackman warns that the American economy is starting to slow due to high interest rates and highlights potential challenges for certain individuals and commercial real estate investors, but his firm's top three holdings, Chipotle Mexican Grill, Restaurant Brands International, and Lowe's Companies, have seen varying performances in the market.
Former Treasury Secretary Lawrence Summers says that the surge in US job growth is positive news for now, but it also suggests that the Federal Reserve's interest-rate hikes are no longer as effective, increasing the risk of a hard landing for the economy.
Higher-for-longer interest rates are expected to hinder U.S. economic growth by 0.5%, potentially leading unprofitable public companies to cut their workforce, according to strategists at Goldman Sachs, who also noted that the Federal Reserve's current benchmark rate is insufficient to cause a recession. Additionally, the firm warned that the high rates could increase the U.S. debt-to-GDP ratio to 123% over the next decade without a fiscal agreement in Washington.
Atlanta Federal Reserve Bank President Raphael Bostic believes that the US central bank does not need to raise interest rates further and does not see a recession on the horizon, despite the slowing economy and falling inflation caused by previous rate hikes. He also emphasized that the recent conflict between Israel and Hamas creates uncertainty and could impact the global economy.
Atlanta Federal Reserve Bank President Raphael Bostic believes that the U.S. central bank does not need to raise interest rates further, and he sees no recession on the horizon, despite the impact of previous rate hikes on the economy and inflation. Bostic also acknowledges the uncertainty created by the conflict between Israel and Hamas, but remains prepared for unexpected events.
The Federal Reserve will continue with its 'higher-for-longer' interest rate narrative unless there are signs of a slowdown in the consumer sector.
Market veteran Ed Yardeni believes that the wobbling commercial real estate market will lead the Federal Reserve to halt interest rate hikes, as rising bond yields and office vacancies worsen the credit squeeze in the sector.
Bank of America's CEO Brian Moynihan predicts that rising interest rates and tightening lending conditions will lead to a slowdown in the U.S. economy, impacting consumer behavior and business decisions.
Bill Gross, co-founder of Pacific Investment Management Co., believes that the U.S. economy is likely headed for a recession by the end of the year due to regional bank struggles and rising auto delinquencies, despite official data suggesting economic expansion. Gross is considering investing in shares of regional banks and believes that the Treasury curve will steepen as long-term rates catch up with short term rates.
U.S. inflation slowdown is a trend, not a temporary blip, according to Chicago Federal Reserve President Austan Goolsbee, who believes the downward trend will continue and hopes that it does, while also expressing concern over rising oil prices and possible economic disruptions in the Middle East; Mortgage Bankers Association Chief Economist Mike Fratantoni suggests the Fed is likely done with interest rate hikes and may reach its 2% inflation target by early 2025, with a low probability of rate hikes in November or December; Philadelphia Fed Reserve President Patrick Harker believes interest rates can remain untouched if economic conditions continue on their current path, as disinflation is taking shape and the Fed's interest rate policy is filtering into the economy; Mortgage rates have been affected by the federal government's increasing spending and smaller revenues, leading to a heavier impact on mortgage rates this fall.
Bill Ackman, billionaire hedge fund titan, has ended his bet against 30-year Treasury bonds due to concerns about a slowing economy and increased geopolitical risks, shifting his main fear from inflation and higher interest rates to a potential recession; however, not everyone agrees with Ackman's outlook on inflation and interest rates, with some suggesting that wage growth and consumer spending could still lead to higher yields.
Bill Ackman, the billionaire head of Pershing Square Capital Management, has announced that he is closing his short bets on government bonds, attracting attention due to his successful investing history.
Billionaire investor Bill Gross predicts that the US will enter a recession this quarter due to challenges faced by regional banks and a surge in auto loan delinquencies, causing him to recommend investing in the yield curve, SOFR futures, and equity arbitrage; fellow billionaire investor Bill Ackman has closed his bets against Treasurys due to growing economic risks.
Billionaire investor Bill Ackman has covered his short bet on US Treasuries, citing excessive risk in the current global environment and the slowdown of the economy.
The recent market rout on Treasury bonds may have gone too far, as even prominent bond bears like Bill Ackman and Bill Gross are suggesting investors buy bonds, while Federal Reserve Chairman Jerome Powell believes the spike in yields may lessen the need for future rate increases.
Omega Advisors billionaire CEO and chairman Leon Cooperman warns of a potential recession in 2024 due to inflated energy prices, quantitative tightening, and the impact of Federal Reserve rate hikes. However, he believes the U.S. economy is currently "doing fine." Cooperman attributes the current economic situation to both political parties and predicts that the S&P 500 index will stagnate. Additionally, he expresses concern about rising inflation and its effect on market selloffs.
The US economy experienced strong growth in the third quarter of 2023, fueled by consumer spending, but there are warning signs of a possible recession due to the impact of rate hikes on auto loans, credit cards, and student debt, as well as higher borrowing costs and the potential for deeper recession if the Federal Reserve continues to raise interest rates.
