Famed investor Michael Burry predicts US recession ‘by any definition’
Investor Michael Burry, famous for predicting the collapse of the US housing bubble before the 2008 financial crisis, has warned that the US economy is likely to enter a recession this year.
Burry said on social media that inflation has peaked but will peak again as part of the same cycle once the economy slows and the Federal Reserve takes action to boost a depressed economy.
Burry, who was portrayed in actor Christian Bale’s film The Big Short, said he expects the Fed to cut rates at some point to boost economic growth and fuel another surge in inflation.
“Inflation has peaked. But it is not the last peak of this cycle. We’ll probably see [the consumer price index] lower, possibly negative in H2 2023 and the US is in recession by definition,” he said in a tweet on Sunday. “The Fed will cut and the government will stimulate. And we will have another inflation spike. It’s not difficult.”
Inflation peaked. But it is not the last peak of this cycle. We are likely to see lower CPI in 2H23, possibly negative, and the US is in recession by definition. The Fed will cut and the government will stimulate. And we will have another inflation spike. It’s not difficult.
— Kassandra BC (@michaeljburry) January 2, 2023
The National Bureau of Economic Research (NBER) is responsible for defining business cycles based on a variety of indicators. While the time we’re in may be bearing some of the hallmarks of a recession, the group has yet to declare an official dip.
NBER defines a recession as “a significant decline in economic activity that is widespread across the economy and lasts longer than a few months.” This definition encompasses a range of economic factors but is based on three main criteria: the depth, breadth and duration of a downturn.
Economists polled by the Wall Street Journal in October put the probability of a recession within 12 months at 63%, up from 49% in July.
The Fed has steadily hiked interest rates to curb inflation, increase the cost of borrowing and encourage consumers and businesses to rein in spending.
“A Difficult Year”
Bank of America chief economist Michael Gapen also believes the US is headed for a recession in 2023, although that outcome is not guaranteed.
“It’s not burned in. It’s not safe. We may be able to avoid it, but I would agree that the outlook for most people in the position I think 2023 could be a difficult year for the US,” he told Face The Nation Sunday. .
MoneyWatch: Financial forecasts for 2023 04:45
But Gapen also hinted that it remains within the Fed’s power to snuff out inflation without triggering a deep recession.
“In this particular case, I think it doesn’t have to be deep. It doesn’t need to be extended,” he said. “I think what we just have to do in a way is to take the edge off an economy that has come out of the pandemic with a lot of strength and has brought with it too much inflation.”
Other forecasters are more optimistic that the US can avoid a recession.
“We maintain our subjective 60% odds that the economy will achieve a soft landing in 2023 and our 40% odds that it will land hard, with a broad-based recession and no resurgence in the bull market for equities,” economist Ed Yardeni told investors in his latest newsletter.