OPINION: The US is either in recession already, or probably will be by the third quarter. This has sweeping consequences for the world’s dollarised financial system, for commodity demand and for global inflation.
The US is either in recession already, or probably will be by early autumn. This has sweeping consequences for the world’s dollarised financial system, for commodity demand and for global inflation.that the US economy will enter a sustained contraction in the second half of this year, much sooner than presumed just weeks ago. The chances of a “soft landing” have dropped to 10 per cent. If so, you can stop worrying about an inflationary spiral.
With breathtaking insouciance, the New York Fed said a key reason for the recession downgrade is aggressive, But be careful. Markets are defending a “one-yard line” just above a wicked cluster of technical levels.The broad NYSE Composite index is sitting on its 200-week moving average. If that line buckles, the summer bear market could “morph into crash”, with a further 30 per cent haircut.His “bull and bear” indicator is at zero, a secular buy-signal, but one that can be double-edged at critical moments. It was zero in August 2008 before the Lehman crisis, a terrible moment to take the plunge.
“The fulcrum of Fed theory is that inflation would subside, so there would be no need to crush the economy, and that there would be much less mess to clean up than markets believe. But as time goes on, it is increasingly difficult to sustain that story,” he told me. The Powell Fed now risks the opposite mistake. It is ignoring an accelerating contraction in real money growth: just as it did, lest we forget, before the Lehman crisis in mid-2008.Simon Ward, from Janus Henderson, says his early warning indicator – the growth of real six-month M1 – turned steeply negative in the US early this year. It is much the same picture in the UK, Europe and the largest emerging economies, bar China.
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