Aldi supermarket in Alhambra, California, United States, on Thursday, June 27, 2024.
Eric Thayer | Bloomberg | Getty Images
Contrary to what many believe, investment research firm BCA Research believes that the economy is on the verge of entering a recession, and that the expected interest rate cuts by the US Federal Reserve will not be enough to guide markets out of the recession.
“Everyone now thinks there is a recession, and that is exactly the opposite of what the market thinks,” Gary Evans, chief global asset allocation strategist at BCA Research, told CNBC’s “Squawk Box Asia.”
Evans pointed to signs of a slowing economy, including what he called a “deterioration” in the U.S. labor market. The U.S. Labor Department reported that the unemployment rate rose to 4.3% in July, its highest level since October 2021, and a gauge of U.S. manufacturing activity fell to an eight-month low in the same month.
“There are things that are falling apart very quickly now,” the strategist added.
The Fed funds futures market indicates that investors expect at least three interest rate cuts by the end of the year, according to the CME FedWatch tool.
But according to Evans, this will not change his expectations much.
“Cutting interest rates a little bit will not prevent a recession. A recession on average lasts ten months… and it takes about a year before the Fed's cuts start to give the economy a boost,” he said.
“The market thinks the federal funds rate at the end of next year will be 3%. It's now at 5.3%. That won't happen unless there's a recession,” he added.
A recession typically occurs when there are two consecutive quarters of decline in a country's real GDP.
Traders are also watching the annual Jackson Hole economic policy symposium this week, which could provide further clarity on the interest rate outlook, with Federal Reserve Chair Jerome Powell scheduled to speak at the meeting on Friday.
The US economy has remained strong even in the face of persistent inflation and rising interest rates.
In the past century, we have seen more than a dozen recessions, some lasting up to a year and a half.
Although the United States is not officially in a recession, a poll by Affirm reveals that about 3 out of 5 Americans believe it is.
