Inflation is now proving to be a bit sporadic and the Federal Reserve has its knives out. The hammer is in the end, but.
The raising of interest rates -the U.S. central bank’s primary instrument to halt the rise of prices is a weak instrument at best, and up to now, Fed Chairman Jerome Powell has been reticent to use it, let alone employ it.
David Rosenberg expects the Fed’s campaign against inflation, which started Tuesday with the first in a increase in interest rates, to put down inflation in the U.S. inflation dragon -with a heavy price.
Investors who are used to having quick money and rapid gains in real estate, stocks and other assets that are sensitive to rate are hoping and even expecting the Fed to bring about a Goldilocks smooth economic recovery to the U.S. economy.
However, Rosenberg is a well-known chief economist and president, as well as strategist for Toronto’s Rosenberg Research & Associates Inc., is confident of the fact that Fed will fight inflation to the point that U.S. economy will slide into recession before this summer.
In reality, Rosenberg sees evidence of the economy’s slowing pace already, which is a reason to question the timing of the Fed’s announcement and just amplifies the recession warning -an economic cycle that might not be over in a single recession. It took two devastating recessions in 1981 and 1982 in order for the then Fed chairman Paul Volcker — the patron saint of those fighting inflation as well as Powell’s modelto eliminate an entire decade of inflation and revive an entire U.S. economy and stock market.
Rate increases can reduce the demand, but when they go too far, they will crush it. The resulting recession is negative for home prices, consumer-discretionary stocks and nice-to-have goods and services, and positive for Treasury bonds and the producers and purveyors of consumer staples, health care and medicine, energy, food and other things people need to have.
The investment process in these conditions is difficult and discerning and requires a lot of skill, but investors need to be able to be prepared to play the cards they’re dealt. This week, in an interview on the phone that was edited for clarity and length, Rosenberg detailed his recession scenario and recommended the best place to invest your money so that you have the chance of profiting from any it is that you are dealt by Mr. Market turns over.
Unsurprisingly, Rosenberg’s economic or market forecast isn’t widely and widely discussed in the present. However, as he likes quote: “Forewarned is forearmed.”