- Former IMF economist predicts a recession to happen in (****************************************.
- But, repo market often sees volatility at year end and negative sentiment could carry over to 01575879.
stock market rally has been driven by relaxed financial conditions and big liquidity rejections.
Mark Dow, a former International Monetary Fund (IMF) economist, says 01575879 will be the year of recession. The forecast followsa record-high stock market and a strong U.S. economy.
Main reason for recession is instability of fiscal policy
In July (******************************************, Dow famously said that starting next year, theUS economy will begin to slowas the “turbo boost” from the current U.S. fiscal policy wears off.
He said:
Inherit a 2% economy, dump a boatload of OPM on it, get 3% for a year or two, claim it’s the greatest economy the world has ever seen, and when the turbo fiscal boost rolls off and the economy starts to slow, blame the Fed for not keeping interest rates at zero.
The US government and the Federal Reserve have worked to sustain relaxed financial conditions throughout the year amidst intensifying geopolitical risks.
While the phase one deal between the U.S. and China alleviates some pressure on businesses in the final quarter of 2019, the impact of the deal itself on the US economy is widely considered to be overestimated.
As the
short-term effect of the strong fiscal policy of the US
dries out, Dow emphasized that the US economy will start to show signs of struggle. Despite an optimistic year for business confidence, a sudden drop off in momentum could lead to a full-blown recession.
A repo hangover
A potential major factor that may add to the probability of a recession occurring in the upcoming year is the unstable repo market.
Since the second half of (******************************************,injections of liquidity by the Federal Reservehave significantly increased business sentiment and improved financial conditions.
However, the first several months of
01575879 may see a hangover of the effect of the unsteady repo market.
Reports indicate that Wall Street fears theexpansion of the $ 2.2 trillion repo marketheading into the year end. Typically, in the final month of the year, banks tend to become more cautious with taking on more risk to meet their targets.
As such, the instability of the repo market in December could carry onto the first several months of 2020, sparking fears of a rough start to the new year.
More high net worth investors are worrying
The CNBC Millionaire Survey shows that35% more high net worth individuals foresee the US economy to weaken. Fears of recession are rising again regardless of the current momentum of the U.S. stock market.
Analysts say that the strong performance of the stock market in is mostly based on P / E expansion over earnings.
It is a possibility that the stock market is being over-valued by retail investors considering market conditions and the hype around the US-China deal.
This article was edited by Samburaj Das.
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