(Kitco News) - A recession is still coming as the U.S. economy faces a string of "ugly" job numbers in the coming months, according to Danielle DiMartino Booth, CEO and Chief Strategist at QI Research.
Speaking on Kitco News, Booth suggested that the Fed is "buying time" with its latest December rate cut, with fears that inflation may be stickier than the Fed initially hoped.
Dissension among Fed officials over inflation is unusual, with multiple dissents occurring this year, Booth pointed out.
Adding to the uncertainty is the wide range of opinions on the terminal neutral rate, which currently sits between 2.4% and 3.9%. The median neutral rate is 3%, the highest since 2018. This suggests considerable concern within the FOMC about inflation's persistence. "Clearly, there is a lot of concern, a lot of paranoia on the Federal Open Market Committee, that inflation is going to be sticky," Booth said.
However, Booth expressed confusion over the Fed's concerns, pointing to declining car prices and rents and questioning "where the Fed thinks inflation's coming from." She noted that even Fed Chair Jerome Powell acknowledged that housing services inflation has begun to decline.
"For the life of me, I don't know what the re-accelerant is going to be to keep inflation so stubbornly high given it took a good solid 12 months for the tariffs to be manifest in goods inflation during the 2018-2019 episode," Booth noted.
Further complicating the picture is the state of the labor market. Citing a recent report from the Philadelphia Fed based on the quarterly census of employment and wages, Booth highlighted that payroll losses may have begun as early as the second quarter of 2024. This, combined with the lagging nature of employment as an economic indicator, could mean the U.S. economy is already in a recession.
"Either they're saying the U.S. is going to pull out of recession the time we finally get all the revisions, or they're in complete denial of the data as they're coming out in their revised form," Booth stated.
Looking ahead, Booth remains unsure of the market's direction. She acknowledged the potential for a significant market correction and expressed caution, stating, "I never, ever trust a crowded narrative."
In addition, Booth questioned the ballooning debt levels, which surged from $2 trillion in 1987 to $36 trillion today. With the Fed's recent moves, Booth believes the incoming Congress may face limitations in addressing the nation's interest expenses.
For Booth's top risks for 2025, watch the video above.
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