Economy Likely Headed to Recession, Brean's Ryding Warns

We're looking at 5.5%, inching closer to 5.6% as we look at those Fed swaps. Jimmy Diamond, CEO of JP Morgan talked about potentially 6%, not his base case, but potentially 6%. Is there a scenario where we get there? Oh, very easily there's a scenario where we potentially get to 6%, and that's if inflation doesn't continue to move lower. The Fed, I think the economy is likely headed to recession. And that's not because of how tight the Fed is now.

It's because how easy the Fed was when it let inflation out and invariably defeating an inflation problem, which we haven't had for a long time involved for a session. So if inflation is resistant to an interest rate of 5.25% to 5.5%, the Fed's going to do more. I do think they're going to pause. There are likes in policy. They're going to see how long it takes.

And the good news is compared to where we were a year ago, when we were at zero rates compared to now, that's a Fed funds rate of 4.5% to 4.75%. With potentially 3.25% to go, we are much, much closer to that. So the surprises for the markets on the right side are not going to be that great. So it sounds like you're dismissing the no-landing scenario altogether.

Well, I can never dismiss. We have to be humble and recognize the state of our knowledge. So we can't completely dismiss the no-landing scenario. But do you think it's become fanciful? We can get an inflation problem of the magnitude we've had back to price stability without going through a recession. I think that is a fanciful thing. Now there were some good news, piece of news in the GDP report today, particularly wage and salary income was revised substantially higher in both the third and fourth quarter. So consumers are actually in a stronger position than they were.

But I do think that if you look at the signals in the bond market, I used to, I moved to the US in 1989, worked for the New York Fed. I worked for a gentleman, Arturo Australia, who developed the New York Fed's yield curve model for predicting recessions, which is the spread between three months and 10 years. And that's heavily inverted. Tenure yields yielding a lot less than short-term rates. And that has always correctly signaled a recession. So if we don't have a recession, it's going to go against a signal that has worked in every recession. And every time we've had it, we've had the recession for the last 50 years.

Bloomberg