- Top economist David Rosenberg dashed hopes the US economy can escape recession.
- Wall Street’s suggestion of a “no landing” scenario is its greatest lie in 15 years, he said.
- Rosenberg predicted a painful downturn will take hold in the second quarter of this year.
The US economy is barreling toward recession, and claims that it can escape a downturn are deeply misleading, David Rosenberg warned in a flurry of tweets on Wednesday and Thursday.
“The ‘no landing’ narrative is the biggest hoax Wall Street economists have peddled since ‘global decoupling’ in 2008,” the Rosenberg Research chief said. “Follow the leading indicators, not the Pied Pipers.”
Rosenberg was referring to hopes that the Federal Reserve can crush inflation without causing growth to stagnate or unemployment to spike. Leading market commentators, including Jeremy Siegel and Ed Yardeni, have raised the prospect of the economy avoiding a hard or even soft landing, and continuing to grow instead.
As for “global decoupling,” Rosenberg was nodding to claims during the financial crisis that foreign demand and investment would buoy US banks, finance American companies, and offset the decline in domestic demand for goods and services.
“The economy has already landed!” Rosenberg said, pointing to private-sector demand flatlining in the fourth quarter of last year.
The veteran economist also highlighted muted forecasts of future economic activity, the US money supply shrinking in December, and investors pricing in lower interest rates in the months and years ahead.
Those trends indicate a recession will take hold in the second quarter of this year, he said, adding that corporate earnings are already under pressure.
Moreover, Rosenberg pointed to the minutes from the latest Fed meeting as proof the US central bank is bracing for a downturn.
“There were four ‘recession’ citations in the FOMC minutes,” he said, referring to the Federal Open Market Committee, which sets the bank’s monetary policy. “The most since June 2020. Number of ‘no landing’ references? Try zero.”
Inflation soared as high as 9.1% last year, spurring the Fed to hike rates from nearly zero to upwards of 4.5% in the past year to cool the historic price growth. Higher rates encourage saving over spending, hiring, or investing, which can help to alleviate upward price pressures.
However, they can also sap demand and pull down asset prices, increasing the risk of a recession and hammering investors’ portfolios.
Rosenberg has previously dismissed the idea of no landing as a “fairy tale.” He told Insider in a recent interview that the lagged impact of the Fed’s hikes, banks tightening their lending requirements, and the Fed forecasting a material rise in unemployment all signal a recession lies ahead.
“There is no get-out-of jail-free card,” he said about the possibility of avoiding a downturn. He also warned the S&P 500 could plunge 24% from its current level to around 3,000 points, and house prices could slide 15% to 20%.