Investor Michael Burry, who rose to fame when he predicted the collapse of the U.S. housing bubble before the 2008 financial crisis, has warned that the U.S. economy is likely to enter a recession this year.
Burry said on social media that inflation has peaked, but will reach a high point again as part of the same cycle once the economy slows and the U.S. Federal Reserve takes action to stimulate a depressed economy.
Burry, who was portrayed by actor Christian Bale in the movie "The Big Short," said he expects the Fed eventually to cut interest rates to stimulate economic growth, fueling another bout of inflation.
"Inflation peaked. But it is not the last peak of this cycle. We are likely to see [the consumer price index] lower, possibly negative in 2H 2023, and the US in recession by any definition," he said in a tweet Sunday. "Fed will cut and government will stimulate. And we will have another inflation spike. It's not hard."
The National Bureau of Economic Research (NBER) is in charge of defining business cycles based on a variety of indicators. While the period we're in may bear some of the hallmarks of a recession, the group has not yet declared an official slump.
NBER defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months." That definition encompasses a range of economic factor but is based on three main criteria: The depth, diffusion and duration of a downturn.
Economists surveyed by the Wall Street Journal in October pegged the probability of a recession occurring within 12 months at 63%, up from 49% in July.
The Fed has steadily hiked interest rates in an effort to temper inflation, raising borrowing costs and leading consumers and businesses to pull back on spending.
"A difficult year"
Bank of America Chief Economist Michael Gapen also thinks the U.S. is headed for a recession in 2023, although that outcome is not guaranteed.
"It's not baked in. It's not for certain. We may be able to avoid it, but I would agree that the outlook by most people who sit in the position that I do think 2023 could be a difficult year for the U.S.," he
But Gapen also suggested it remains within the Fed's power to snuff out inflation without triggering a severe recession.
"In this particular case, I think it doesn't have to be deep. It doesn't have to be prolonged," he said. "I think what we just need to do in some ways is take the edge off an economy that's emerged from the pandemic with a lot of strength and brought too much inflation with it."
Other forecasters are more optimistic that the U.S. can steer clear of a recession.
"We maintain our 60% subjective odds that the economy will achieve a soft landing in 2023 and 40% odds that it will land hard, with a broad-based recession and no bull market resuming for stocks," economist Ed Yardeni told investors in his latest newsletter.
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