The recent banking turmoil is forcing policymakers to navigate a trilemma of price stability, maximum jobs, and financial stability, says top economist Mohamed El-Erian. While many strategists have warned of a credit crunch, El-Elrian forecasts a contraction in the banking sector equivalent to 25–50 basis points of tightening, hitting small businesses harder than big businesses. Chris Watling, chief executive of financial advisory firm Longview Economics, believes a recession is coming based on the “brutally bad” leading economic index and yield curve inversion. When asked if equity markets could come through the downturn relatively unscathed, Watling replied, “I mean they won’t come through it unscathed … I’m not even sure about relatively.” The Federal Reserve’s own staff has acknowledged “a mild recession starting later this year,” according to the FOMC meeting minutes, and JPMorgan strategists say that even a mild recession could easily cause stocks to drop by about 15%.

Markets Insider/Morgan Chittum
The US economy is facing the ultimate ‘trilemma’ as the Fed desperately tries to get inflation down, Mohamed El-Erian says

The Federal Reserve is facing three major obstacles, and recent banking turmoil is making its job of tackling them more difficult, Mohamed El-Erian said.

“This just makes the Feds’ ability to navigate this trilemma [of] price stability, maximum jobs, and also financial stability that much harder,” he told Bloomberg Television Thursday.

Turmoil in the banking sector snarled financial markets after the failure of Silicon Valley Bank in March. Overseas, Credit Suisse was bought up by UBS on concerns over the Swiss lender’s long-term health.

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CNBC/Sam Meredith
A recession is coming — and stock markets won’t come through it unscathed, strategist says

The latest U.S. economic data suggests a recession is coming, according to the chief executive of financial advisory firm Longview Economics, and investors may need to prepare for some pain in the stock market.

Speaking to CNBC’s “Squawk Box Europe” on Friday, Chris Watling said he believed a recession was on its way, citing what he described as “pretty compelling” and “brutally bad” leading economic indicators.

The Conference Board on Thursday said its Leading Economic Index for the U.S. fell by 1.2% in March, slipping to its lowest level since November 2020. The data appeared to indicate that economic weakness could soon intensify and spread throughout the U.S. economy.

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Fox Business/Megan Henney
The Fed says a mild recession is in the cards this year. What could that look like?

The U.S. economy is almost certainly careening toward a recession that will have a years-long impact, according to the Federal Reserve’s own staff.

Minutes from the Fed’s March meeting released last week indicate that its forecasters believe a minor downturn is imminent after recent turmoil within the banking system – even as the central bank’s top policymakers deny such an outcome.

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” the minutes said.

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