Economic Warning: Investment Leaders See US Recession Looming
Top investment executives at two major asset management firms are concerned about the growing risk of a US recession, unlike many government officials and investors who believe the Federal Reserve's interest rate hikes won't harm the economy.
Vincent Mortier, CIO at Amundi ($2.1 trillion AUM), sees a high likelihood of a recession, expected by year-end or early next year. Rick Rieder, CIO of Global Fixed Income at BlackRock ($9.4 trillion AUM), also expresses growing pessimism about the US economy, though he doesn’t predict a severe recession.
Both firms have gone “overweight” on US government bonds, anticipating that the Fed has likely completed rate hikes and that Treasuries will perform well during an economic downturn. They also anticipate a weakening US dollar.
These concerns emerge amidst market expectations of a “soft landing,” where the Fed controls inflation without causing a recession. Treasury Secretary Janet Yellen is confident in this scenario.
However, Goldman Sachs recently reduced the probability of a US recession in the next 12 months, and a Bank of America survey of fund managers suggests optimism.
Mortier and Rieder highlight labor market trends as signs of a slowdown, with rising unemployment and job additions falling below expectations.
Rieder sees attractive yields on Treasury bonds as further rate hikes become unlikely. Mortier is concerned about weakened consumer demand, potential price competition among companies due to a sluggish job market, and corporate balance sheets facing strain from cash depletion and higher interest rates during a wave of refinancing.
Mortier also points out the high US government debt level, which could limit the government’s ability to provide additional economic support. Despite these concerns, Amundi is betting against the US dollar, a risky move given its safe-haven status during market turbulence.