FILE PHOTO: Scott Minerd, Chairman of Guggenheim Investments and Global Chief Investment Officer, speaks through the Reuters Global Investment 2019 Outlook Summit, in New York, U.S., November 12, 2018. REUTERS/Brendan McDermid/File Photo
NEW YORK (Reuters) – Guggenheim Partners international chief funding officer Scott Minerd warned on Tuesday the agency’s recession forecast mannequin confirmed a 58% probability of the financial system being in a recession by mid-2020, and a 77% probability of 1 starting within the subsequent 24 months.
Minerd, who oversees greater than $240 billion in belongings beneath administration, stated historical past exhibits that when Guggenheim’s Recession Probability Model reaches present ranges, “aggressive policy action can delay recession, but not avoid it.”
Minerd, in a analysis word to shoppers, stated Guggenheim expects the Trump administration will proceed to make use of simpler financial coverage as a “green light for more aggressive trade policy.”
He famous that Federal Reserve Chairman Jerome Powell explicitly cited commerce coverage as a rationale for chopping charges, which dangers the event of a suggestions loop between Fed fee cuts and commerce struggle escalation.
Economists extensively anticipate the U.S. central financial institution to chop its benchmark fee for the second time this yr by 25 foundation factors to a variety of 1.75% to 2.00% at a gathering ending Wednesday to counter dangers posed by the U.S.-China commerce conflict.
“If core inflation heads back up toward 2%, some Fed officials may more forcefully resist further rate cuts, complicating an already difficult messaging exercise,” Minerd stated.
“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.”
Minerd stated buyers ought to maintain an in depth eye on the inventory market and the form of the yield curve.
“Stock market response will be a key indicator of the success of the Fed’s move to cut rates, and if the curve stays inverted the market is signaling its skepticism that Fed policy will keep the economy from falling into recession,” he stated.
Editing by Jacqueline Wong