The Fed will spark an economic crash by delaying rate cuts, State Street equity research chief says

• The Fed pushing out its timeline for rate cuts could spark an economic crash, State Street's Marija Veitmane said.
• Tight monetary policy could lead the US into a "no landing" scenario before a downturn, she warned.

The economy is bound to enter a downturn if the Federal Reserve delays cutting interest rates, according to Marija Veitmane, the head of equity research at State Street Global Markets.

The Wall Street vet warned of an impending economic crash if the Fed doesn't ease monetary policy soon. Higher interest rates are already taking a toll on economic strength, she noted, even if growth numbers looked fine last quarter.

"Delaying cuts has real economic impact. So even though for now we're kind of staying on a level path, not cutting interest rates can create economic problems down the line," Veitmane said to CNBC on Monday, predicting the economy would see a "no landing then a crash."

"I think that's a quite likely economic outlook in our opinion," she warned.

Investors have been keeping up hope for to the prospect of "no landing," a best-case scenario where inflation falls while growth remains robust.

But the economy is already showing signs of strain from the burden of elevated interest rates, Veitmane warned. Companies, for one, are being slammed with higher debt refinancing costs, with AAA long-term corporate bond yields rising to 5.28% in April, according to Moody's data.

Higher borrowing costs are also weighing on consumers. Commercial bank rates on credit cards rose to 21.6% in February, the highest in at least 30 years, according to Fed data.

Retail spending also appears to be on the decline as Americans are "really pinching pennies," Veitmane said. She pointed to corporate earnings reports from consumer-heavy companies like Starbucks, which just posted its "weakest" quarterly performance, barring the pandemic and the 2008 Recession, according to one Wall Street analyst.

"We increasingly begin to hear about things breaking down," Veitmane said.

Economists have long warned that high interest rates risk could tip the economy into a recession, though GDP growth and the job market remain rock-solid for now. But the Fed isn't expected to ease monetary policy anytime soon, as central bankers still have concerns about the pace of inflation.

Markets are largely expecting the Fed to keep interest rates level at its next policy meeting. Most investors are pricing in just one or two rate cuts for the year, according to the CME FedWatch tool, down from six at the beginning of the year.