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  5. Rate cuts won't prevent a recession and the economy is deteriorating 'quite rapidly,' investment strategist says

Rate cuts won't prevent a recession and the economy is deteriorating 'quite rapidly,' investment strategist says

Kelly Cloonan   

Rate cuts won't prevent a recession and the economy is deteriorating 'quite rapidly,' investment strategist says
  • A recession is coming even if interest rates come down, according to BCA Research chief strategist Garry Evans.
  • "We see signs that the economy is turning down," Evans said, pointing to labor market indicators.

Markets are confident that rate cuts will benefit stocks and the economy, but one strategist says lower borrowing costs won't stave off a recession.

Federal Reserve Chairman Jerome Powell said in remarks at Jackson Hole on Friday that "the time has come to adjust policy," giving his strongest indication yet that the central bank is poised to cut rates next month.

Stocks rallied following the comments, as markets have been clamoring for lower rates to boost stocks and give the economy more padding against a possible recession.

Yet, BCA Research chief asset allocation strategist Garry Evans said this week that lower rates can't avert a looming downturn.

"Every single one of us now believes there's a recession, and that's exactly the opposite of what the market believes," Evans said in a Thursday interview with CNBC.

"There's a very strong narrative out to the market that we're facing a soft landing. We don't believe that. We see signs that the economy is turning down," he added.

Evans pointed to the labor market in particular as a source of concern.

Revised jobs data released by the Labor Department on Wednesday showed the US added 818,000 fewer jobs between April 2023 and March 2024 compared to initial figures.

That data, plus a rising unemployment rate, are cause for concern, Evans said. US unemployment is up from 3.4% in April 2023 to 4.3% last month, the highest rate since October 2021.

"There's things that are breaking down quite rapidly now," Evans said, including recent manufacturing data. US manufacturing activity fell to its lowest since November, according to data from the Institute for Supply Management released earlier this month.

Evans said labor and manufacturing data, plus a range of global data like weak Japanese exports, are showing signs of a tough economic outlook worldwide.

"Across the board, it's telling you that the global economy is not on a very solid footing," he said.

Evans said the Fed will likely cut rates in September, but that it won't prevent a pending recession.

Investors are currently pricing in a 25 basis point cut next month as almost certain, with smaller odds of a 50 basis point cut, according to the CME FedWatch tool. Markets see 100 basis points of cuts through the rest of this year.



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