The message of the market is we are not going to have a recession even though it is going to be a close call and that the economy is going to continue to expand, says Hugh Albert Johnson, Chairman & Chief Investment Officer, Hugh Johnson Advisors. Excerpts from interview with ETNOW.
What is your take on the Fed Chairmans commentary that there are chances of rate cuts going ahead?
I do not think there is any big surprise since both inflation and his deep concerns about the US economy and for that matter his concerns about the global economy, particularly the manufacturing sector of both the US and the global economy and what that means for business investment. He obviously puts that at the top of his list of concerns and states very clearly that the Federal Reserve will reduce the interest rates when they meet this month and will probably reduce interest rates even further in the September to December timeframe.
It is fairly dovish and more or less forecast or predicted by those who are watching closely. A little bit of a surprise obviously is good news for the equity markets if we are going to get a two and maybe even three cuts in interest rates over the course of the next nine months and that seems to be the implication.
On the other side, if you look at it, it is concerning the fact that the economy is on a downturn. The commentary goes on about the uncertainty and downside risks for the US economy. Should not everyone be concerned that global growth is now going to slow going ahead?
Of course, we should be concerned and probably you would be even more concerned, maybe even alarmed if the Federal Reserve did not see that and did not say that they are going to respond to it. So you should be deeply concerned. There is always a trade off and right now, the trade off says we are going to see the global economy and even the US economy slow down.
It is going to slow down in 2019; it is going to slow even further in 2020 and the Federal Reserve is catching up by reducing short-term interest rates. Whether they will be successful and will avoid a downturn is too difficult to tell, but I would say it is going to be a very close call now.
Again for the US, we are talking about 2.4-2.3% growth in 2019 and even less — 1.5% to 1.8% in 2020. That is very close to recession. Hopefully, the Federal Reserve will be successfuRead More – Source