An Aldi supermarket in Alhambra, California, USA, Thursday, June 27, 2024.
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Contrary to what many believe, investment research firm BCA Research believes the economy is on the cusp of a recession, and it is expected that the Federal Reserve’s upcoming interest rate cuts will not be enough to guide the market out of recession.
“Everyone of us now thinks there’s a recession, which is exactly the opposite of what the market is saying,” Garry Evans, chief global asset allocation strategist at BCA Research, told CNBC’s “Squawk Box Asia.”
Evans pointed to signs of a slowing economy, including what he called a “deteriorating” U.S. labor market. The U.S. Department of Labor reported that the unemployment rate edged up to 4.3% in July, the highest level since October 2021, and indicators of U.S. manufacturing activity fell to eight-month low Same month.
“Something is falling apart quickly right now,” the strategist said.
According to the Federal Reserve, the federal funds futures market indicates that investors expect at least three rate cuts before the end of the year. CME Group Fed Watch Tool.
But Evans said that wouldn’t have a big impact on his predictions.
“A few rate cuts are not going to stop a recession. The average recession lasts 10 months… It actually takes about a year for the Fed to cut rates to really start to boost the economy,” he said.
“The market thinks the federal funds rate will be 3% at the end of next year. It’s currently at 5.3%. Unless there’s a recession, that’s not going to happen,” he added.
A recession usually occurs when a country’s real GDP declines for two consecutive quarters.
Traders are also keeping a close eye on this week’s annual economic policy symposium in Jackson Hole, which could provide more clarity on the outlook for interest rates, where Federal Reserve Chairman Jerome Powell is set to speak on Friday.
Even amid continued inflation and rising interest rates, the U.S. economy remains strong.
Over the past century, there have been more than a dozen economic recessions, some lasting as long as a year and a half.
Although the U.S. is not officially in recession, a survey conducted by Affirm shows that about three-fifths of Americans believe that the U.S. is.
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