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A 'real recession' is likely in 2023, with 'layoffs filtering through the economy' - Will Rhind

Kitco News

(Kitco News) - The U.S. unemployment rate remains low at 3.7 percent, but a weakening economy and higher interest rates will trigger layoffs, causing a "real recession" in 2023, said Will Rhind, Founder and CEO of GraniteShares.

"Once those layoffs really start to hit, then we get into the real recession, which is going to come most likely some time next year," he said. "The effects of the last couple of years mean that savings are still relatively healthy. I think that all changes, clearly, when we start to get these layoffs filtering through the economy, and indeed the labor market goes into reverse."

Companies like Meta, Twitter, and Google have been laying off workers, and this "white collar" drop in consumer demand will drive job losses, said Rhind.

"Given that 70 percent of U.S. GDP is [consumption], once you see that impacting the higher-earning part of the economy, I think that's when you see these things go into reverse," he said.  

Rhind spoke with David Lin, Anchor and Producer at Kitco News.

Federal Reserve policy

On Wednesday, Fed Chairman Jerome Powell gave a speech in which he stated that the Fed would "moderate the pace" of rate hikes. Markets appear to have interpreted this positively, with the S&P 500 gaining 3 percent following the speech.

Rhind said that it is "possible" that the Fed will pivot, either pausing or reversing rate hikes.

"I think [The Fed] has to moderate," he said. "The pace of rate hikes already has been arguably too much, too high, and too quick… I think we're already at a point where these incremental rate hikes are really just exacerbating the situation and maybe amplifying whatever recession is going to come down next year."

Rhind said that "expectations of smaller interest rate hikes" would help stock markets.

"One of the things that's really held the market back and really contributed to the majority of losses has obviously been the rapid rise in interest rates, and the impact that interest rates have particularly on the forward cash flow of companies," he said.

Oil

Oil prices have trended downward in the second half of 2022, with the WTI crude oil index falling 30 percent over the past six months. Rhind claimed that China's zero-COVID policy had weakened oil demand and caused oil prices to fall.

"What oil has really struggled with is the Chinese situation, I think more than anything else," he said. "You see big demand destruction from China with all the lockdowns."

However, he also pointed to supply issues being salient, especially as OPEC+ meets to discuss oil supply caps.

"We see OPEC+ making noises around defending higher prices and making it well known that if prices fall, or continue to fall, they will step in and curtail supply even more," he said.

Crypto and FTX contagion

When it comes to crypto contagion following the FTX collapse, some have speculated that Coinbase could be the next to fall. However, Rhind suggested that Coinbase is better run than other crypto firms.

"I think there's more resiliency in Coinbase's business, than in some of these other players," he said. "One of the key things that caused FTX to fall, and indeed some of these other players like BlockFi, has been lending… Coinbase was not allowed by the SEC to do their lending program… so I think Coinbase is in a much different position than some of these other entities.

To find out Rhind's outlook for Bitcoin, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

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