The global economy, led by the Western world, looks pretty shattered, doesn’t it? Vanguard is not worried. They don’t think there will be a recession this year. Next year, however, the odds are higher.
The United States has not experienced such a high rate of inflation since the 1970s. Europe is collapsing and needs quick action to reverse the unreasonable energy costs heading into colder weather months.
Certainly, a lot of this is due to the war in Ukraine. But not all of that. Massive stimulus and money printing, along with policies aimed at punishing any company that makes something out of fossil fuels, made things worse.
However, although Europe is “terrible,” as Goldman Sachs described it last week, other countries are in similar distress. And they don’t punish farmers and oil companies, and they don’t have sanctions against Russia.
Japan’s inflation rate reached its highest level in 8 years. Brazil and India are raising interest rates. The inverted yield curve in the US got worse on Friday, indicating a slump after the technical slump the economy was going through in the second quarter.
Is it just bleak for the global economy, or bleak And the the death?
recession? any stagnation?
Look out for the Biden White House to celebrate again when the third quarter economic data comes out. If Barclays Capital is right, third-quarter GDP rose 0.3% from the previous quarter, which means the technical slump of consecutive quarterly declines is over. If so, markets should take this to mean that the economy is growing. And with inflation growing with it, the Fed won’t stop raising interest rates.
Investors need to get this pause thing out of their heads. The Fed, European Central Bank and Bank of England will not allow inflation at 8% while interest rates are like 2%. (In Europe, they are less than 2%). This defeats the purpose of having a central bank whose mission is to control inflation.
Vanguard, one of the world's largest fund managers, predicts that the Fed is likely to precede inflation trends and move 75 basis points per second. They said a 100-point increase is not on the table. They expect the benchmark lending rate to end this year at 3.75% and then to 4.25% next year.
Given how no one is talking about a recession, the Fed will rise. Vanguard doesn't think that will lead to a recession either.
"A recession seems unlikely this year given the strength of the labor market," they wrote in a note last week. “Our forecast for a recession is the same now as it was before, with a 25% chance of a recession in 2022 and a 65% chance of a recession in 2023.”
Last week, American Express
from the latest Small Business Recovery ReportAnd the 37% said they plan to raise prices, 22% aim to negotiate better deals with suppliers, and 22% cut lower-margin products and services from their offerings.