The head of investment responsible for managing the $185 billion Texas teacher retirement system has warned that the US will fall into recession in the first half of next year as the effects of interest rate hikes spread across the economy.
“There will actually be a hard landing; we will fall into recession,” the fund's chief investment officer Jase Auby said at a board meeting in Austin on Thursday. He mentioned that the yield curve is inverted and one key measure of business activity is weak, which suggests that the economy is about to decline, and he expects to fall into recession in the first or second quarter of next year.
Currently, bankers, investors, and economists have major differences in their views on the health of the US economy. J.P. Morgan CEO Jamie Dimon said on Friday that consumer debt conditions are still healthy, and that the economy is still resilient after warning last year that a “hurricane” was imminent. However, the chief fixed income investment officer of Morgan Asset Management still expects a recession and expects the Fed to be forced to cut interest rates.
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Auby believes that apart from higher mortgage interest rates, the actual impact on the economy of the more than a year of austerity before the Fed suspended it in June has not yet been shown. To reflect this, the fund focuses on diversification, reducing exposure to very large acquisitions, and exploring opportunities in the energy sector, he said.
Auby said that more than 14% of the Texas Teacher Pension Fund invests in government bonds, a position that will help mitigate the phase of large fluctuations in the stock market. The fund ranks first in Texas, with nearly 2 million members. Compared with its peers, it has a lower allocation of US stocks, and favors emerging and developed markets.