BCA Research, a well-known investment analyst firm, warns that a looming U.S. recession is imminent and that the Federal Reserve’s expected rate cuts may not be enough to stem the economic slump. Garry Evans, the chief global asset allocation strategist at BCA Research, told CNBC’s “Squawk Box Asia” that prevailing expectations of a recession are in stark contrast to optimistic market projections.
Evans highlighted key indicators of economic decline, particularly a deterioration in the U.S. labor market. Recent data from the U.S. Department of Labor showed the unemployment rate rising to 4.3% in July, the highest since October 2021, along with a significant decline in U.S. manufacturing activity, which hit an eight-month low.
“The economic elements are deteriorating rapidly,” Evans noted. Although projections from the CME’s FedWatch tool suggest at least three rate cuts by the end of the year, Evans remains skeptical that they will be effective in averting a recession. He explained that historically, recessions average 10 months, and that it typically takes about a year for the impacts of Fed rate cuts to positively affect the economy.
He further noted: “With the current federal funds rate at 5.3%, it is unlikely that the market will expect it to decline to 3% within the next year without a recession.”
Recessions are typically defined by two consecutive quarters of GDP contraction. This week’s economic policy symposium in Jackson Hole is highly anticipated, with Fed Chair Jerome Powell scheduled to discuss the outlook for rates, potentially offering further insights into the economic trajectory.
Despite inflation and high interest rates, the U.S. economy has proven resilient. Historical data shows that the United States has experienced numerous recessions over the past century, some lasting up to 18 months.
While not officially stated, a recent Affirm poll indicates that about 60% of Americans believe the United States is already in a recession.
