May 11, 2022

CEO predicts recession ‘in coming quarters,’ citing mortgage interest rates

[Yahoo!Finance, Getty Images]

As Recession Watch heats up, executives and Wall Street pros are debating when — as opposed to if — the next official downturn could occur amid the one-two punch of elevated inflation and rising interest rates.

“As people take on higher mortgage interest rates, that means that in the future, we’ll be refinancing our clients the millions and millions that we’re putting on our platform to lower interest rates because we feel strongly that there’ll be a recession coming here in the coming quarters,” Jay Farner, CEO of Rocket Mortgage parent Rocket Companies, said on Yahoo Finance Live on Wednesday.

That raises the question: Given that would occur if the U.S. experienced another quarter of negative GDP growth in Q2 after the GDP contracted 1.4% in Q1, are we already headed there?

“I don’t think so,” J.P. Morgan Chief U.S. Economist Michael Feroli said on Yahoo Finance Live when asked (video above). “As recently as April we were adding over 400,000 jobs, and that data is less than a month old. And it looks like the momentum remains pretty strong. Certainly, the weekly jobless claims data suggest the labor market is pretty healthy too. So I don’t think we are in a recession. Also, some of the high-frequency things we look at suggest consumer spending remains pretty robust. Right now it feels like we are pretty far from recession, at least most of the data we are looking at is pretty vigorous.”

The question of whether we are living through a recession and just don’t know it yet isn’t far-fetched.

First, tech stocks such as Netflix, Meta, and Coinbase have crashed this year as growth slowed. Pros have bantered that the plunge in tech stocks is hinting at a sharp economic growth slowdown later this year.

Inflation is hovering around 40-year highs, and the Federal Reserve looks poised to raise interest rates aggressively into the summer to cool things off and slow the economy down.

Feroli noted that after rates rise further, “the impact of that on the economy, which may be felt late this year or sometime in the next year, does kind of raise a recession risk when you kind of look out at least to next year.”

Goldman Sachs economists recently put the odds of a recession within two years at 35%. And on Tuesday, in a new interview with Yahoo Finance Live, Cleveland Fed President Loretta Mester warned of a possible economic contraction.

By Brian Sozzi

Leave a Reply