– Federal Reserve’s interest rate forecasts are warning signs of an upcoming recession, according to economist David Rosenberg.
– The Fed predicts a significant decrease in the federal funds rate, which has historically been a recession indicator.
– Stock investors are eagerly anticipating rate cuts, but Rosenberg warns of potential risks in the leveraged loan market as economic downturns approach.
Top economist David Rosenberg is warning that the Federal Reserve’s interest rate forecasts are indicating a recession may be on the horizon. Despite the Fed’s optimistic predictions for GDP growth and unemployment rates, Rosenberg sees the sharp drop in the median federal funds rate as a red flag for a potential economic downturn. The Fed anticipates significant decreases in the federal funds rate by 2025 and 2026, which historically have been rare occurrences.
Rosenberg points out that in past soft landings or economic downturns, the Fed typically only reduces rates by a certain amount. However, the current forecast signals a much larger drop in rates, which is concerning. He warns that investors should be cautious about eagerly anticipating rate cuts this year, as historically, interest rates, bond yields, and equity prices all decline during recessions. Rosenberg also highlights the risks associated with the leveraged loan market, which is seeing a rise in defaults as economic conditions worsen.
Overall, Rosenberg’s analysis suggests that the Federal Reserve’s interest rate forecasts are indeed indicating the possibility of a recession in the near future. He advises investors to tread carefully with their expectations for rate cuts and to be aware of the risks in the leveraged loan market as economic conditions become more uncertain.