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‘Mild' recession could occur within two years, Fed to cut rates and pivot - Sam Burns
The U.S. is heading for a ‘mild’ recession within two years, and despite aggressive Federal Reserve rate hikes, will be able to avoid a prolonged and severe economic downturn due to its strong labor markets and relatively low leverage, according to Sam Burns, Chief Strategist at Mill Street Research, who has over two decades of experience as a macroeconomic analyst, including working as a Senior Equity Analyst at State Street and Brown Brothers Harriman.
Burns also forecast that once a recession occurs, the Federal Reserve would reverse course and pivot.
“I think if there is a recession, it would be a mild one,” he said. “I don’t think it’s going to be a severe recession… I think the Fed will then respond to that by cutting rates and helping to offset the effects of slowing growth as we get later into this year and early next year.”
Speaking with David Lin, Anchor and Producer at Kitco News, Burns claimed that the Fed’s “hawkish rhetoric” would change over the next six months as the economy enters recession territory. He suggested that a severe recession would also be avoided because asset prices had stabilized, and labor markets are strong.
“The assets that were the most bubble-looking have really been deflated,” he claimed. “I think the fact that the labor market is still fairly tight… will provide the spending necessary to keep the economy from falling off a cliff.”
The U.S. unemployment rate in January was 3.4 percent, the lowest it has been since 1969. The Bureau of Labor Statistics confirmed that 517,000 nonfarm jobs were added last month, above projections.
Inflation
Inflation has been decelerating over the past several months, after reaching a peak of 9.1 percent in June of 2022. Burns said that much of the inflation could be attributed to economic shocks which had now largely dissipated.
“Most of the inflation that we’ve seen over the last couple of years was due to these extraordinary shocks, like COVID, the response to COVID in terms of stimulus, and then more recently Russia disrupting the energy markets,” he stated. “Barring any big surprises, I think that [inflation trending downwards] is going to continue… the year-over-year [inflation] numbers, which of course is what the Fed and a lot of the headlines focus on, will come down to 2 percent as we get closer to mid-year.”
To find out which investments Burns thinks will do well in this environment, watch the video above
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