A prominent financial adviser has warned of an impending recession, partly caused by the 'brutal effect of rising rates'.
In his outlook, Kurt S. Altrichter pointed out that the performance of the iShares 20+ Year Treasury Bond ETF (TLT) has declined significantly since its peak, reflecting the devastating impact of the Federal Reserve's aggressive interest rate hikes, said it in post X on it. 11 January.
The expert's data showed that the TLT chart has fallen 52% after peaking, a possible warning sign of an impending economic downturn.
In particular, the TLT, which tracks long-term US Treasury securities, is a key economic barometer. The bond decline raises concerns because the yield is traditionally seen as a safe investment in times of slow economic activity.
To this end, Altrichter identified two specific conditions where it is worth buying bonds in particular: when a recession is on the horizon or when inflation is accelerating.
Given the current economic situation, this large decline in TLT indicates that bonds may be oversold. This presents a potential buying opportunity as inflation cools and bond prices are expected to recover.
In this line, the relationship between bond prices and interest rates explains the significant decline of TLT. In particular, rising rates lead to new bonds with higher yields, making existing bonds with lower yields less attractive, lowering their prices.
This drop affects TLT and indicates potential economic stress, as such declines are often preceded by slowdowns or recessions.
However, the timing is still uncertain. Altrichter suggested that while buying TLT now may be wise in five years, investors may need to be patient. A recovery depends on a cooling of inflation, which would add to the value of existing lower yielding bonds.
Fed rate cut decision premature
At the end of 2024, after previous interest rate hikes, the Fed moved to ease monetary policy, cutting the rate by 25 basis points on December 18 to 4.25%-4.50%, the lowest level since February 2023.
This marked the third rate cut of the year, following reductions in September and November, as the Fed responded to a cooling economy while managing elevated inflation.
At the same time, although the Fed has indicated fewer interest rate cuts for 2025, Altrichter pointed out that the aggressive rates seen at the end of 2024 may not have been well timed.
Therefore, he believes that this decision is premature, warning that inflation could rise further amid the impending market turmoil. He expected inflation to climb above 3% by the end of Q2 2025, which could trigger a market correction of more than 10% by the end of June or early July.
The financial advisor said that, in addition to these projections, there is still some uncertainty about Donald Trump's evolving policy agenda in his second term in office.
More worries about rising inflation
It is worth noting that the concerns about a possible increase in inflation after the release of jobs data in December 2024.
As reported by Finbold, analysts believe that the unexpectedly strong labor market will cause inflation to spiral out of control, forcing the Fed to keep interest rates higher for longer. longer.
Other market players have also raised concerns about a potential economic crash. For example, in a report by Finbold, economist Henrik Zeberg warned that the economy is heading for the worst crash in history, suggesting that the recent rate cut may be too late.
Similarly, investor Robert Kiyosaki believes that the market crash is underway, although his global economic forecasts are still disputed.
Featured image via Shutterstock
Source: https://finbold.com/this-indicator-hints-at-imminent-recession-after-brutal-interest-rate-rise/
