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A Recession ? We are fine with it

Sameer Kalra

Over the past few days, officials within the US administration, including President Trump, have been saying there will be a period of detox/difficulty/transition. This period might be triggered by tariffs, spending cuts, or low confidence. The most surprising element is the level of comfort they have in a possible recession. 


As they expect Biden data to continue until Q3 of this year, the blame is easily transferred. Whether this is by design or a known consequence is difficult to pinpoint. The problem will and always will be the impact of such a recession and its duration.


The recessions in 2001 and 2009 had peak inflation prior to the start. Currently, the inflation is declining but still remains above Federal Reserve comfort. The complications might get intense if tariffs as predicted lead to higher inflation during the start of such a recession. This will make rate cuts impossible with even the bond yields not moving down by much.


Given that the USA spends more on interest payments rather than defence is surely a concern. The problem is to reduce it by design and refinance at a lower cost by introducing pain to the economy that already slowing. If the design has some flaws like everyone has then the losses can be higher than estimated. 


This leaves investors and other stakeholders with two choices, first is to participate now and prepare for some level of losses. Second, participate in the recovery period. The main parameters to monitor the tilt would be confidence and expectations along with the volatility index.

 
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