Tuesday, 23 July 2019

US economy at risk of recession, Fed easing could make it worse

Democratic presidential candidate Elizabeth Warren sees a possible US recession.

I warned about an economic crash years before the 2008 crisis, but the people in power wouldn’t listen...

When I look at the economy today, I see a lot to worry about again. I see a manufacturing sector in recession. I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble.

While Warren is a politician and may have a political agenda in warning about a recession, others have also sounded such a warning.

Morgan Stanley's chief US economist Ellen Zentner said in a report that “the path to the bear case of a U.S. recession is still narrow, but not unrealistic”, with a probability of about 20 percent.

However, she added that if trade tensions escalate further, growth could be cut from a projected 2.2 percent in 2019 to a negative 0.1 percent in 2020.

And while the Federal Reserve is expected to cut interest rates, Zentner warned that Fed policy easing could be negated by increasing pressure from tariffs that could pull both the US and global economy into recession.

Indeed, Steve Ricchiuto, the US chief economist of Mizuho Americas, said that Fed easing could exacerbate any coming economic slowdown by keeping interest rates excessively low.

A rate cut “will incite undesired risk taking by borrowers and deepen the next recession, which will unnecessarily increase the cost to society,” Ricchiuto told clients in a recent research note.

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