Brian Smedley, head of the Macroeconomic and Investment Research Group at Guggenheim Investments, explains what the data tell us about the timing and severity of the coming recession.
- Fed rate cuts could start to have more impact, but so far data are consistent with our recession forecast, which also suggests the next recession will be of average severity.
- Limited monetary and fiscal policy space may prolong the recession; the Fed doesn’t have much room to maneuver on rates, and the effect of 2018’s one-time tax cuts has worn off.
- When the business cycle turns, the Fed is likely to pull out all the stops by cutting rates to the zero bound and recommencing asset purchases.
- Historical evidence of “successful” Fed cuts is mixed, however, and it is difficult to correctly time policy moves.
- At this point in the cycle, we believe there is more risk to the downside than upside and caution investors to focus on capital preservation.
Source: Guggenheim Investments