Renowned economist Peter Schiff has issued a stark warning about a potential recession looming on the horizon, accompanied by a surge in inflation. This dangerous combination, according to Schiff, could place significant pressure on the US economy. His concerns stem from recent economic data released on Tuesday, revealing contractions in manufacturing and construction activities.
The US manufacturing activity contracted more than anticipated in August, while construction activity for July also fell beyond expectations. Citing this data, Schiff stated, “It’s becoming clear the #economy is entering a #recession just as #inflation is poised to turn higher.”
This pessimistic outlook follows a decline in the stock market, particularly affecting growth stocks and tech giants. Schiff attributes this to the weakening of the dollar, driven by anticipated interest rate cuts by the Federal Reserve. He argues that this weakening could lead to rising import prices, fueling inflationary pressures.
The dollar index, which measures the value of the US dollar against a basket of currencies, has been on a downward trajectory since its peak in mid-April. Futures markets currently anticipate a near-certainty of an interest-rate cut at the Federal Open Committee meeting in September, with a 50 basis-point cut favored.
While Schiff’s recession concerns are drawing attention, some economists argue that these concerns might be premature. They point to the robust second-quarter GDP data, which indicated a 3% annualized quarter-over-quarter growth. Consumer spending, a key driver of GDP, also rose at a healthy rate of 2.9%. Furthermore, despite a downward revision in job growth, the labor market remains relatively strong, defying a doomsday scenario.
Despite these counterpoints, the possibility of an economic slowdown remains a significant concern. All eyes are now on Friday’s nonfarm payrolls report, which will provide insights into the health of the labor market and offer a broader gauge of the economy’s strength.
Investors are closely monitoring the situation, with recession-proof investments gaining traction. The iShares 20+ Year Treasury Bond ETF (TLT), often considered a safe haven during economic downturns, saw a 1.64% increase on Tuesday, suggesting investor anxiety.
