A shallow recession in the U.S. is a “virtual certainty” in the third quarter, according to Destination Wealth Management’s Michael Yoshikami, as the Federal Reserve launches a historic attack on inflation.
The Fed on Wednesday announced a 75 basis point hike to interest rates, its largest since 1994. Chairman Jerome Powell also signaled the Federal Open Market Committee’s intent to continue its aggressive path of monetary policy tightening in order to rein in inflation, after the U.S. consumer price index jumped by an annual 8.6% in May, the hottest inflation print since 1981.
However, the closely-watched Fed GDP tracker is indicating that a recession is on the horizon, and analysts expect the Fed’s sharp hiking cycle to further depress already slowing economic growth.
Speaking to CNBC’s “Squawk Box Europe” on Thursday, Yoshikami, founder and CEO of Destination Wealth Management, said the Fed’s nod ahead to another 50 to 75 basis point hike in July showed the central bank is “going to take any action necessary to stem inflation.”
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“Now the problem we’re going to have here is are they going to tip the economy into recession when the consumer is already starting to pull back?” he said.
“The housing market in the U.S. is really locked up with mortgage rates close to 6% right now, and I think it’s a virtual certainty that we’re going to go into recession next quarter.”
Although a recession is now a widely accepted likelihood, Yoshikami noted that it does not necessarily mean long-term economic pain is inevitable.
“There is a belief that if we raise enough – let’s say we raise by 75 [basis points] and then we raise by another 75 – then if there is a problem in the economy, if it’s a shallower recession, which I suspect it would be in the third quarter, the Fed actually has some room now to come back off of some of those rate increases,” Yoshikami explained.
