As markets (^DJI, ^IXIC, ^GSPC) anticipate a potential interest rate cut in September, all eyes are on Federal Reserve Chair Jerome Powell’s commentary at Jackson Hole on Friday. However, recession fears continue to linger among some investors.
Macro Intelligence 2 Partners co-founder and president Julian Brigden joins Market Domination to share his market outlook.
Brigden argues that the Fed’s ability to cut rates without driving the economy into a recession is "statistically not very likely." He points out that in the last 12 tightening cycles, there have been 8 recessions. While this isn’t "the base case," it is priced into markets, especially in bonds (^TYX, ^TNX, ^FVX).
"We are at one of these sort of bizarre inflection points," he tells Yahoo Finance.
To achieve a soft landing scenario, Brigden explains, the Fed would need to balance inflation "while allowing the labor market to cool but not cool too much that you lose momentum." However, he notes that employment is typically either rising or falling, and lately it has been losing momentum.
"So the danger is that you leave it too long, and arguably, the Fed has already done that," he cautions, suggesting that if officials were to cut rates now, it might be too late to regain momentum in the labor market.
Regarding market expectations for a Federal Reserve rate cut in September, Brigden says, "I think it would take an awful lot to get a 50 basis-point-rate cut." He adds, "And if they cut 50, the equity market may think they like that, but they’re going to hate it because you’ll have lost employment momentum at that point and I think a recession would be guaranteed."
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