Ex-Fed Chair Alan Greenspan sees a US recession as the ‘most likely outcome’

Darrell Cronk, Chief Investment Officer for Wealth & Investment Management, and The Advisory Group’s Chief Market Strategist, Phil Blancato, react to former Federal Reserve Chairman Alan Greenspan saying a US recession is likely.

Former Federal Reserve Chairman Alan Greenspan has warned Americans that an economic recession is “the most likely outcome” as the central bank continues to tighten monetary policy to fight inflation.

Former New York Federal Reserve President William Dudley reinforced Greenspan’s claims, saying a US recession is “likely” to come because the Federal Reserve’s rate hikes are fueling one.

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Wealth Management and Investments Chief Investment Officer Darrell Cronk on Wednesday reacted to former Federal Reserve officials’ gloomy forecasts for 2023, telling FOX Business’ “Making Money” guest host Lauren Simonetti that he agrees that a recession is the “possible outcome” for him. the weak US economy.

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“I tend to agree more with Alan Greenspan that it is[recesioni]probably the likely outcome,” Cronk said Wednesday.

“And keep in mind, it’s not just about interest rates going up or down for that matter. It’s the mix of money, supply is tightening, the stronger US dollar has put pressure on financial conditions. Bank reserves are running out. So there’s a whole. a whole host of other elements that are also conspiring to tighten financial conditions at the same time,” Cronk explained on “Making Money with Charles Payne.”

Alan Greenspan is a former chairman of the Federal Reserve who led the US central bank for nearly two decades. (Reuters/Reuters Photos)

On the other hand, he rejected Dudley’s argument that the Federal Reserve’s rate hikes are what’s causing a recession, clarifying that he doesn’t believe rising rates are solely responsible. While Cronk noted that the Fed’s involvement is “a big point,” he said he would have to take “a little bit” of the other side of the argument into consideration.

“I’m not sure just cutting rates would do that [avoid a recession]. It’s the lag effect we all know with monetary policy. So typically 6 to 9 months, which means, if you use that as the lagged effect, we’re now feeling the June 75 basis point and maybe the July 75 basis point increase,” Cronk explained.

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“We should still feel 75 in September, 75 in November and 50 in December, and whatever else we do here in 2023. So that will bite into the first half of 2023,” he added.

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Cronk went on to argue that consumers will experience a “two-sided coin” in 2023 – with the first half of the year being particularly difficult – but said the second half is likely to see improvements.

“I think you’re going to have a strong rally in the second half, but get tired of the first half because there’s still a lot of pain to be felt,” he warned.

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“I mean, you know, everybody wants inflation to come down to two, two and a half percent, including Federal Reserve Chairman Powell. But there’s a lot of pain in going from 6.7 in the CPI, 6.7 to 2.0 here. and there,” Cronk concluded.

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