David Rosenberg: don't believe the Fed

published 16 September 2019

David Rosenberg, chief economist and strategist for Gluskin Sheff © Misha Friedman/Bloomberg via Getty Images

Jerome Powell, chairman of the Federal Reserve, cheered markets last week by telling them: "We're not forecasting or expecting a recession". But that's no surprise, says David Rosenberg of Gluskin Sheff "Not once in the past five decades has the Fed ever predicted a recession not even in the month before it happened". As Rosenberg points out, Powell's predecessors Ben Bernanke and Alan Greenspan (pictured below) each made similar claims ahead of the financial crisis in 2008 and the tech bubble bursting in 2001 respectively.

At the end of the day, the US central bank is hardly going to come out with a negative statement about the economy if it can avoid it. "These guys (and the gals) are the resident cheerleaders," after all. On top of that, Powell is planning to cut interest rates further to stave off any collapse, reckons Rosenberg, who expects rates to fall back towards 0% and for quantitative easing (or something similar) to restart. "I still say we're retesting the zero bound before the cycle ends, with even more rounds of unconventional measures."

It's not just the US that is overly complacent about recession. An apparently solid Canadian jobs-market report belied the fact that "the engine is actually spluttering", with key sectors, such as retail employment, looking weak. The Canadian dollar, which surged on the initial report, is likely to lose ground when the Canadian central bank is "compelled to follow the Fed and the other 31 central banks who have cut rates so far this year".