While the U.S. economy has appeared strong despite high interest rates, some market experts believe the situation might be more fragile than it seems. Scott Shellady, known as ‘The Cow Guy,’ recently expressed concerns during Benzinga’s PreMarket Prep show, arguing that government-reported labor data hasn’t accurately reflected a potential slowdown in the U.S. economy.
Shellady’s remarks came ahead of Federal Reserve Chair Jerome Powell’s Jackson Hole speech, where Powell acknowledged a noticeable cooling in the labor market. Shellady asserted that government spending has been the sole factor preventing the U.S. from entering a recession.
“The reason why we haven’t been in an official recession… we’ve had government spending hand over fist,” Shellady stated. “We’ve basically spent our way out of not having a recession. If you look at those job numbers month over month, the government spending has kept us out of a recession and that’s it.”
Shellady also highlighted that recent revisions to jobs numbers have shown fewer jobs added than initially reported. However, he doesn’t believe the Fed can easily rectify the cooling labor market by lowering interest rates. He explained that the Fed faces a challenging situation: cutting rates could lead to a resurgence of inflation, but maintaining current rates could worsen the labor market.
“So they’re in damned if you do, damned if you don’t,” Shellady said. “If they cut rates they’re going to have an inflation problem, if they don’t, they’re going to have an American story problem.”
Powell seems inclined to risk a potential increase in inflation and is ready to cut rates in September. The CME’s FedWatch Tool currently indicates a 100% likelihood of a rate cut at the Fed’s September 18 meeting, with approximately a 70% chance for a 25 basis point cut and a 30% chance for a 50 basis point cut.
