West News Wire: According to market veteran Roger Altman, the US is on track to see an even worse recession than that predicted by Federal Reserve Chair Jerome Powell.
The founder and senior chairman of Evercore cited remarks made by the head of the central bank, who claimed that a recession wasn’t the most likely scenario for the US economy, in an interview with CNBC on Wednesday.
However, Altman, who believes a downturn is the most likely result by the end of the year, points out that this is in contrast to the multitude of economic data that imply otherwise.
One reason is that the 2-10 Treasury yield curve, which is a well-known predictor of an impending recession when it inverts, has experienced its steepest inversion in more than 40 years, with the yield on the 2-year Treasury above the yield on the 10-year Treasury.
Though a recession hasn’t been officially declared yet, the inverted yield curve has preceded previous recessions by about 18 months, according to Altman, as was the case for the downturns beginning in 1989 and 2006.
Altman pointed to Evercore’s trucking survey, a measure of freight demand that the company promotes as a reliable recession indicator, and claimed that other industry surveys are also portending difficulties for the economy. Recently, the indicator fell below 48, a level that is frequently associated with a downturn.
Even though more upbeat pundits have claimed that the epidemic is mostly to blame for the current inflationary pressures, Altman noted that doesn’t make a short-term recession less likely. Neither does the good stock market performance, which at this stage is unlikely to price in negative economic data that will emerge by the year’s conclusion.
“To me, the likelihood is a moderate recession,” Altman said. “You can look at the yield curve. You can look at the small business confidence index. You can look at so many data points which are pointing downward.”
Experts have been warning of heightened recession risks for the past year as the Fed aggressively raised interest rates to combat inflation. Rates are now at their highest range since 2007 a level that could easily overtighten the economy into recession, especially since the full tightening effect of rate hikes takes months to fully show up in the economy.
Fed officials have also suggested rates could trend higher this year as inflationary pressures remain a concern. Markets are currently pricing in an 87% chance the Fed will hike rates another 25 basis-points at its next policy meeting, a move that would lift the fed funds rate to range of 5.25-5.50%.
“We seen the steepest hikes in monetary policy in 40-something years. And again, looking at history, it would be too soon for them to have their full effect now. six months, different story,” Altman said.
