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Michael Burry: 'U.S. in recession by any definition,' inflation to see 'another spike' as Fed cuts rates

Kitco News

(Kitco News) The U.S. is already in a recession "by any definition," and even though inflation might have peaked, for now, there will be another spike as the Federal Reserve starts to cut rates again, warned "The Big Short" investor Michael Burry.

Scion Asset Management founder's message comes as markets are trying to price in recession odds for the new year.

"The US [is] in recession by any definition," Burry tweeted over the weekend.

But an economic slowdown does not guarantee that the inflation problem that the Fed has been busy battling for all of 2022 is over, he added.

"Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023," Burry said. "Fed will cut and government will stimulate. And we will have another inflation spike."

Last year, the Federal Reserve committed to a historic tightening path, raising rates at the most rapid pace since the early 1980s. Overall, rates climbed by 425 basis points, rising to a range between 4.25%-4.5%.

During the last meeting of the year, the Fed slowed to a 50 basis point increase but remained very firm in its goal to bring inflation down, warning markets that rates are not at a restrictive-enough level and will have to stay higher for longer.

Fed Chair Jerome Powell told reporters after the December FOMC meeting that the longer the U.S. central bank needs to keep rates higher, the narrower the runway for a soft landing becomes.

"I don't think anyone knows whether we're going to have a recession or not. And if we do, whether it's going to be a deep one or not, it's just not knowable," Powell said.

The latest median forecast for 2023 shows that rates could go up to 5.1%, with the Fed also looking for the real GDP to come in at 0.5% in 2023 and the PCE inflation to slow to 3.1% in 2023.

This is not the first time Burry has talked about recession. In November, despite the better-than-expected Q3 GDP data, he projected an unavoidable, "real" multi-year recession for the U.S.

In a now-deleted tweet, Burry told his followers: "What strategy will pull us out of this real recession? What forces would pull us so? There are none. So we are really looking at an extended multi-year recession. Who is predicting this? There are none."

Burry also recently highlighted gold, noting that this was the time for the precious metal to rally, citing the crypto contagion risk post-FTX collapse.

"Long thought that the time for gold would be when crypto scandals merge into contagion," Burry said in a tweet that has since also been deleted.

Burry is known to delete his tweets shortly after posting them. Burry, who runs the hedge fund Scion Asset Management, is famous for spotting the mortgage crisis early and making a fortune against the U.S. housing bubble. In 2019, the investor also made millions by purchasing shares of GameStop, which was well before the Reddit frenzy took over the stock.

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