(Kitco News) - As the Federal Reserve prepares to raise rates on July 27th to fight high inflation, some analysts are forecasting a recession.
Alfonso Peccatiello, Author of The Macro Compass, is one of them. Speaking with David Lin, Anchor and Producer at Kitco News, Peccatiello said that "we are literally in a recession."
A recession is often defined as two quarters of negative GDP growth.
First-quarter U.S. real GDP fell by 1.6 percent, and the Atlanta Fed's GDP tracker sees second-quarter real GDP falling by 2.1 percent. The second-quarter figures will be confirmed later this summer.
Despite his negative outlook for the economy, Peccatiello suggested that there is hope for savvy investors.
How deep of a recession?
Peccatiello uses indicators such as expendable income, household surveys, and personal savings rates to examine the threat of a looming recession. Based on his research, he said that the recession should last at least four quarters.
He also predicted that the fall in GDP will be on the order of "two to three percent."
Fed Chairman Jerome Powell recently committed to raising rates to fight inflation. This could trigger a deeper recession. Peccatiello said, "if [The Fed] is willing to keep pushing until something breaks, until unemployment picks up… they can and they will slow down inflation."
Powell has spoken of a 'soft landing,' in which inflation is brought down without collateral damage to GDP. Peccatiello said that Powell is "dreaming" if he thinks he can carry out such a policy.
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Investing in a time of recession
As an economy recovers from a recession, equities experience double-digit gains. According to Peccatiello, this implies that when GDP has troughed, it is an ideal time to purchase general equities.
He said that GDP will trough in "three or four quarters down the road."
He also said that if the Fed backs down on fighting inflation, then this would confer a significant boon to the stock market.
Given, however, that the Fed is on a tightening cycle, Peccatiello said that it is a bad time to hold "speculative assets" like Bitcoin.
"You have to sell all your speculative assets," he said. "Bitcoin… is a speculative asset. It's an asset that needs risk sentiment to be a strong to rally. That's exactly the opposite of where we are today."
To find out where Peccatiello has allocated his money, and his thoughts on gold, watch the above video.
Follow David Lin on Twitter: @davidlin_TV
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