① Rosenberg said that the Federal Reserve's interest rate forecast indicates an imminent recession; ② Using history as a guide, in a soft landing situation, the Fed usually only cuts interest rates by 75 basis points, but they now expect to cut interest rates by 150 basis points by 2025; ③ US stock investors are eagerly waiting for the Fed to shift to a more relaxed monetary policy.
Financial Services Association, March 29 (Editor Huang Junzhi) David Rosenberg (David Rosenberg), a top US economist and president of Rosenberg Research (Rosenberg Research), said in his latest report on Thursday that the Federal Reserve's interest rate forecast is sending a warning signal that a recession is imminent.
“The Federal Reserve doesn't want to make this clear, but it's actually saying that a recession is likely to hit us.” he wrote.
Although the Federal Reserve optimistically predicts a GDP growth rate of 2.1% and an unemployment rate of 4% this year, Rosenberg believes that the official forecast of a sharp drop in the median federal funds rate next year is an indicator of economic recession.
According to the Federal Reserve's estimates, the median federal funds rate will be lowered by 150 basis points to 3.875% by 2025, and a further drop of 225 basis points to 3.125% by the end of 2026.
Rosenberg said that in the past when the economy had a soft landing, the Federal Reserve usually lowered interest rates by 75 basis points, as seen in 1987, 1995, 1998, and 2019. The only exception was from September 1984 to August 1986, when the federal funds rate was cut even more drastically due to a 60% drop in oil prices.
He wrote, “Other than that incident, any reduction in the federal funds rate of close to 150 basis points after World War II (that is, the forecast for 2025) was due only to one thing... (the recession hit)”
As the Federal Reserve turns to action to deal with the anticipated recession, Rosenberg warned stock market investors to be wary of the upcoming series of interest rate cuts.
“In a recession, interest rates, bond yields, and stock prices all fall at the same time.” he said.
Finally, he also reminded investors of the risks in the leveraged loan market, especially as the shadow of the recession deepens.
“The current default rate is rising. The delinquency rate is over 6%, which is double the average since 1997, and is rapidly approaching the level that triggered the economic downturn in 2001, 2008, and 2020.” he added.
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