The United States economy is susceptible to recession as its stocks could decline to 20%.
Mark Zandi, the chief economist of Moody’s Analytics, told the public that the U.S. equity stocks might dip from 10%-20% as the Federal Reserve withdraws its assistance for the U.S. economy.
During his CNBC’s Trading Nation interview last June 18, Zandi explained that U.S. equity stocks have become vulnerable since the second quarter of 2020, following the Federal Reserve’s withdrawal of support.
The Federal Reserve has already declared that it will cease its support for the U.S. economy. This move came after the U.S. stock market had degraded last June 18, with the Dow Jones posting its most deficient performance down to 3.45% since October 2020.
Zandi believes that the Fed is in a race against time to correct this move, warning that investors are becoming wary.
The tariff decrement of stocks has also caught the attention of James Bullard, the St. Louis Fed chairman. He suggested that the Federal Reserve may have to augment the stock rates in 2020 to police the foreseen inflation.
Zandi further postulated that the increase in the interest rates does make stocks’ gain less palatable to investors, as huge interest rates weaken the business companies’ incomes’ future value. Yet, the analyst does not believe that the equity stocks would decrease up to 30%. However, the 20% diminution does imply that the U.S. economy is inclined towards a recession.
Nevertheless, Zandi is confident that this downfall focuses more on augmented risk asset prices than a critical economic concern. In his appearance on CNBC’s Trading Nation, he further opined that the wage growth will be sturdy, and the unemployment rate in the U.S. will decrease.
He also warned the stocks and bonds investors that inflation would still be a problem, as he called it “dead ahead.” Zandi is also concerned about the strong housing market sustainability despite leverage mortgage rates.
In his final statement in the Trading Nation, he said that inflation would be higher than during the pre-pandemic stage. He also manifested that the Federal Reserve has been struggling for quite some time to handle the possible inflation, but he thinks that they would be finally able to do that.