Economic & Finance

Investors would benefit more from a short recession than a smooth trading

investing in short recession

Manulife Investment Management Global Chief Economist and Strategist Frances Donald says a soft landing would be more problematic for investors than a short recession.

It doesn’t seem like a Fed that would cut rates without a recession with the price level shock we’ve seen in the past couple of years,” she told CNBC on Friday.

In contrast to last week’s blowout jobs report of 336,000 new positions, American consumers continue to spend at a steady decline.

Donald, for her part, sees a recession coming. Some experts predict a recession is inevitable, while others say the US might be able to avoid it.

The bigger point is that there is a consensus that the economy will have difficulty reaccelerating, she said.

When rates move this high, credit contracts at the speed and magnitude that it is right now, we really have trouble throwing out all the standard economic relationships. “Consumers don’t have excess savings, defaults and delinquencies are high, and the housing market is effectively frozen,” Donald said. “We can’t get growth above 0%.”

Nevertheless, she said, the alternative is worse. In a soft-landing scenario, the economy doesn’t weaken enough for the Fed to pivot. A short recession would be the only thing that would prompt the Fed to reduce rates.

I don’t think a recession is necessarily the most bearish outcome. I think a soft landing, stagflation-type environment in which you can’t grow and the Fed doesn’t cut rates is worse for most investors.

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Editorial Director
I'm Shruti Mishra, Editorial Director @Newsblare Media, growing up in the bustling city of New Delhi, I was always fascinated by the power of words. This love for words and storytelling led me to pursue a career in journalism. In this position, I oversee the editorial team and plan out content strategies for our digital news platform. I am constantly seeking new ways to engage readers with thought-provoking and impactful stories.

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