Economist Peter Schiff On Tuesday, he warned of a possible looming recession accompanied by rising inflation, a lethal combination that could put pressure on the economy.
What happened: Economic reports released Tuesday showed U.S. manufacturing activity contracted more than expected in August and construction activity in July fell more than expected. Citing the data, Schiff said, “It's becoming clear that the economy is entering a recession just as inflation is poised to rise.”
The stock market plunged after the poor data was released, with growth stocks, especially high-profile technology stocks, leading the decline.
See also: Best stocks in times of depression
Why it is important: Schiff has been warning of a reversal in the direction of inflation, which has been trending lower after hitting a cyclical high of over 9% in June 2022. His premise is that a weakening dollar in the face of expected interest rate cuts by the Federal Reserve has the potential to push up import prices. This, in turn, may stoke inflationary pressure.
The dollar index, which measures the greenback's value against a basket of currencies, has come off its mid-April high above the 106 level. It ended Tuesday's session slightly lower at 101.63.
The futures market is currently predicting a 100% chance of a rate cut at the Federal Open Committee meeting on September 17-18, with a 43% chance of a 50 basis point cut and a 57% chance of a 25 basis point cut.
But Schiff's concerns about recession may be a bit overblown. The second estimate of second-quarter GDP data released by the Bureau of Economic Analysis last week showed the economy expanding at a solid 3% annualized quarterly rate. Consumer spending, which accounts for two-thirds of GDP, also rose at a 2.9% pace.
The labour market, despite the sharp downward revision of employment growth, is not showing any warning signs.
Doomsday predictors would argue that most economic data are lagging indicators and may not paint an accurate picture of where the economy is headed in the near term.
All eyes are now on Friday's nonfarm payrolls report to gauge the strength of the economy through the state of the labor market.
He iShares 20+ Year Treasury Bond ETF TLTAn exchange-traded fund that is considered a recession-proof investment, closed Tuesday's session up 1.64% at $97.75, according to Data from Benzinga Pro.
Read next:
Photo by DesignRage on Shutterstock
Market news and data provided by Benzinga APIs
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.