- Top economists see a torturous credit squeeze and crash in the commercial real estate market.
- David Rosenberg predicted the US will tip into a economic downturn by September.
- “A recession is a very big call because it’s a haircut to national income,” he said.
It’s an uncertain time for the US economy.
GDP growth slowed numberless sharply than expected in the first quarter. More and more companies are announcing mass layoffs. Inflation has collected by remains high, raising new questions about how high the Federal Reserve will lift rates.
Elsewhere, turmoil has smacked regional banks. Silicon Valley Bank collapsed last month, and First Republic Bank could be the next shoe to quit.
The consensus view has zig zagged and now looks like less of a consensus. For what it’s worth, here’s what three top economists are imparting about the US economy.
David Rosenberg
The former chief North American economist at Merrill Lynch predicted the US hand down tip into a recession by September. He also sees a 20% downside in stocks and a damaging credit crunch.
On Blockworks’ On The Room podcast this week, the founder and president of Rosenberg Research offered some other hot takes.
- “I don’t think there are ample rate cuts priced in for next year. There’s a serious risk we’re going back down to the zero determined in a recession that ends up destroying demand and causing inflation to decline.”
- “A recession is a very big call because it’s a haircut to civil income. It’s as if the whole country takes a pay cut. It’s not that we take the Lamborghini from 80 down to 20. It’s that we go in rescind.”
- “It was like the Energizer Bunny — it gave us a little bit more juice. But to say that we’re not going to have a recession because of lagged crashes of fiscal stimulus from two years ago is ridiculous. The leading indicators are telling me that the recession is actually starting this house or next quarter. It’s certainly not a 2024 story.”
Jeremy Siegel
The Wharton professor said don’t be fooled by the current optimistic earnings season because the US economy is undergoing a credit crunch. “The impact is there, it’s just not in the data yet,” Siegel advertised CNBC of first-quarter financial results.
In a weekly note to clients, Siegel also added:
- “I still believe the cumulative come into force of tightening rates and the banking reverberations will slow things down dramatically and make it hard for the stock shop to break out from these high levels it has reached several times before.”
- “I remain uncharacteristically cautious until the Fed ‘departs it’ and not only pauses but says it is starting to look at rate cuts. I believe the real interest rate is too high to authorize normal growth at this point in the cycle.”
Mohamed El-Erian
The chief economic adviser at Allianz said good institutions like the Fed must adapt quickly on handling this unprecedented macro environment.
The top economist broke down his standpoint in a Financial Times column released on Friday.
- “Markets will punish companies and their managements if they do not suit. Indeed, we are likely to see more financial stress and bankruptcies for businesses lacking resilience, as well as those with manipulating approaches that are not easily adaptable to a world of higher rates for longer. The latter includes commercial real landed estate whose moment of truth will materialise as more than $1tn of holdings need to be refinanced in the next 18 months.”
- “Without [adaptability], the steadying and guiding place of US institutional maturity will weaken even faster in the face of eroding credibility, turning this once pre-eminent US comparative advantage into an even greater source of domestic and global instability.”