Economic guru Dennis Gartman reportedly see a good chance of the U.S. plunging into recession next year because of the Federal Reserve’s tactics of continually hiking interest rates.
The editor of the Gartman Letter puts the probability of a 2019 recession at 50%, Barron’s reported, citing a Financial Advisor interview with Gartman.
“The fuel that had been injected into the system is not being starved, but it’s certainly being inhibited,” Gartman was quoted by Barron’s as saying.
“If they don’t continue some kind of quantitative easing methodology, that will be a precursor of a recession. Eventually, we should also see the yield curve move to an inversion, and six months after that a recession. Are we recession proof? Absolutely not,” Gartman reportedly said.
One person who disagrees with Gartman's prediction, not surprisingly, is the head of the U.S. central bank.
The U.S. economy does not face a large chance of a recession in the next two years and the Federal Reserve plans to keep gradually raising interest rates, Fed Chairman Jerome Powell said Thursday, Reuters reported.
Asked whether the narrowing gap between short-term and long-term interest rates points to an impending economic downturn, Powell said the U.S. central bank's analytical models suggest the economy will keep growing.
"There's no reason to think that the probability of a recession in the next year or two is at all elevated," Powell told a gathering of business people.
An inverted yield curve -- when short-term rates on U.S. Treasury securities rise above the long-term rates -- is typically regarded as a sign of a coming recession.
The Fed raised interest rates on Wednesday in a bid to keep U.S. inflation from eventually rising too high, in its third rate hike this year. Powell on Thursday repeated his view that rates need to keep climbing.
"My colleagues and I believe that this gradual return to normal is helping to sustain this strong economy for the longer-run benefit of all Americans," he said in a speech to Rhode Island business leaders hosted by Democratic Senator Jack Reed on Capitol Hill, before taking questions.
Powell's brief speech covered much of the ground he tread on Wednesday in his opening statement at a news conference after the Fed announced its rate hike.
Powell on Wednesday said that the U.S. economy was in a "particularly bright moment" as policymakers forecast another three years of growth, low unemployment and stable inflation.
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