Forecasting the Next Recession: Will Rate Cuts Be Enough?

My Comments: Good times followed by bad times followed by good times is a pattern that more or less defines humanity on this planet for the last several thousand years. And probably before there was a recorded history.

When talking about the economy, whether from a global perspective, or one focused exclusively on the United States, I’m not aware of any forces that will fundamentally change this pattern. Do you?

The current administration is attempting to delay the inevitable to increase it’s chances of a favorable outcome in the 2020 elections. These words below from Guggenheim Advisors and their monthly take on things does nothing to suggest there is a fundamental shift in how life normally plays out.

I’m sharing with you their six bullet points, along with a link to the report itself if you are so inclined to dig a little deeper. It’s long, detailed, has dozens of charts, and will provide a comprehensive overview that leads to their conclusions.

by Scott Minerd, et al \ September 17, 2019 \

Recession Outlook Summary

  • Historical evidence on the Federal Reserve’s skill in using rate cuts to avoid recession is mixed. This time around, numerous headwinds combined with limited policy space globally mean it is a close call as to whether the Fed has cut early enough to help extend the expansion.
  • The odds of a recession both in the near and medium term rose in the second quarter. This trend continued in the third quarter, according to our preliminary estimate, with our Recession Probability Model showing a 58 percent chance of the economy being in a recession by mid-2020, and a 77 percent chance of a recession beginning in the next 24 months.
  • History shows that once our recession forecast model reaches current levels, only aggressive policy action can delay recession, but not avoid it.
  • We expect the Trump administration will continue to use easier monetary policy as a green light for more aggressive trade policy. Fed Chair Jerome Powell explicitly cited trade policy as a rationale for cutting rates, which risks the development of a feedback loop between Fed rate cuts and trade war escalation.
  • If core inflation heads back up toward 2 percent, some Fed officials may more forcefully resist further rate cuts, complicating an already difficult messaging exercise.
  • Incoming data support our longstanding baseline of a recession beginning by mid-2020, per our Recession Dashboard. Given that credit spreads are still relatively tight on a historical basis, we continue to believe it is prudent to remain up in quality as we await better opportunities to deploy capital in riskier credit sectors in the coming downturn.

For the rest of it, go HERE: