The Zhitong Finance App learned that on Thursday, David Rosenberg (David Rosenberg), a top economist and president of Rosenberg Research, published an article suggesting that the Federal Reserve's latest interest rate forecast may be a harbinger of an impending recession. Rosenberg pointed out that although the Federal Reserve did not directly announce the risk of a recession, its actions and forecasts seem to suggest this.
According to Rosenberg's analysis, although the Federal Reserve expects a gross domestic product (GDP) growth rate of 2.1% and an unemployment rate of 4%, he believes that the reduction in the Federal Funds rate forecast is a clear sign of recession. Specifically, the Federal Reserve predicts that the median federal funds rate will drop 150 basis points to 3.875% by 2025, and a further drop of 225 basis points to 3.125% by the end of 2026.
Rosenberg pointed out that historically, the Federal Reserve usually cut interest rates by 75 basis points during a soft landing in the economy, similar to what happened in 1987, 1995, 1998, and 2019. He mentioned that September 1984 to August 1986 was an exception, when the federal funds rate was cut even more drastically due to a 60% drop in oil prices.
He further explained that in the post-war period, apart from the exceptions mentioned above, there was no single time when the federal funds rate fell close to -150 basis points (that is, the forecast value for 2025), and this situation usually heralds the onset of a recession.
As the Federal Reserve turns to action to deal with the anticipated recession, Rosenberg warned stock market investors to be wary of the upcoming series of interest rate cuts. He pointed out that during a recession, interest rates, bond yields, and stock prices tend to fall simultaneously.
In addition, Rosenberg also reminded investors to pay special attention to the risks in the leveraged loan market, especially now that the shadow of the recession is deepening. He added that the current default rate is rising, and the delinquency rate is over 6%, which is double the average since 1997, and is rapidly approaching the level that triggered the economic downturn in 2001, 2008 and 2020.