- Top economist David Rosenberg expects a US recession to hit within 6 months.
- He broke down his outlook in a new interview with Blockworks' Forward Guidance.
Top economist David Rosenberg believes the US economy is barreling towards a recession, and the impact of Federal Reserve's rate hiking cycle has yet to fully materialize.
In a Thursday interview with Blockwork's Jack Farley on Forward Guidance, the president of Rosenberg Research & Associates shared a bleak economic outlook that touched on central bank policy, credit card debt, China, and comparisons to 2008.
The Fed's 11 interest rate hikes amount to one of the most aggressive tightening campaigns ever, and to the economist, that doesn't bode well for the coming months.
Here are his seven best quotes from the interview, lightly edited for clarity.
1. "We've had the biggest interest rate shock since 1981, if I'm not mistaken. 1981 was followed by 1982, which was not a mild recession by the way. Part of that impact's been blunted by the lingering impact of the fiscal stimulus, which is now in the rear view mirror."
2. "I will keep an open mind on the no-landing and soft-landing [scenarios], and if we're still debating the recession by the first quarter of next year I will pull out my mea culpa. I'm willing to give it about six months. If my call doesn't prove prescient by then, I will be the one screaming uncle."
3. "Most of these recessions [since World War II] were not caused by a fiscal shock, but interest rate shocks. The economy went into a recession 11 of the last 14 [rate-hiking cycles]. It wasn't through happenstance. In the mid-sixties, mid-eighties, mid-nineties, the Fed stopped short of raising rates into an inverted yield curve — the bond market's way of telling the Fed it's gone too far. This Fed basically ignored it, or accepted it as the cost of having to crush inflation and defend credibility."
4. "We just replaced credit cards with what happened with subprime mortgages 15 years ago. This is how a recession starts, it starts with a significant erosion in credit quality in one particular asset class, and right now you're seeing it in credit cards and it is not insignificant, even though it's not residential mortgages [like 2008]."
5. "I think that if we escape this little recession, it'll be a miracle."
6. "We've had a massive interest rate shock, we haven't seen the full impact yet. Part of this has been blunted by two things, student debt relief — done — and stimulus checks of over $2 trillion — done. On top of that, we have China seemingly heading into some sort of recession. Certainly it's already entered a structural slowdown that's bumping up against a cyclical slowdown, and it is exporting deflation to the rest of the world."
7. "The people who were calling for a recession just have to be a little more patient. What has camouflaged the situation was all the fiscal stimulus, but you see that has an expiry date to it, and it's starting actually this month and next month. I'm not changing my call, and I know everyone else is throwing in the towel. They did the same thing in 2007. The recession came in December '07, but the NBER didn't even make the declaration for another 12 months."