Jeremy Grantham, known for his accurate market predictions, has raised concerns about a combination of factors that could lead to a slowdown in the US economy.
He has warned that a drop in technology company stock prices in 2021, along with rising interest rates, may create deflationary forces, hurting the real estate market and potentially causing a recession.
Grantham said the effects of these factors might not be immediate but rather gradual and powerful. He suggested that these forces could regain strength and potentially drive the economy into a recession that might last well into the following year. This perspective contrasts with the Federal Reserve's recent statements, which downplayed the possibility of a recession.
Also Read: Fed can’t celebrate yet as investors expect rates, inflation to remain elevated
Grantham's track record of accurately predicting market shifts lends weight to his current analysis. His note titled ‘reinvesting when terrified’ during the market bottom of March 2009 speaks volumes about his deep understanding of the financial markets.
Fed predictions
Grantham's scepticism towards the Federal Reserve's predictions is rooted in history. He pointed out that the Federal Reserve has often missed the mark when it comes to forecasting economic downturns.
Particularly, he noted, the Fed failed to predict recessions that followed major market bubbles. Grantham emphasised that the Fed tends to focus on the positive effects of market booms while ignoring the negative impact of market crashes.
When asked about Federal Reserve Chairman Jerome Powell's handling of inflation, Grantham reiterated his reservations. He believed that inflation and interest rates were subject to larger economic forces, and while Powell's role was significant, he wasn't the sole determinant of their trajectory.
Grantham anticipated that inflation might rise moderately, leading to slightly higher interest rates. “Inflation is largely out of his (Powell’s) hands. I suspect that inflation will never be as low as it averaged for the last 10 years, we have now entered a period of moderately higher inflation and therefore moderately higher interest rates.”
Grantham's insights highlight the potential risks the US economy might face in the coming months. His concerns about deflationary trends and rising interest rates creating a recessionary environment provide a counterpoint to the Federal Reserve's optimistic stance. “In the end, life is simple, low rates push up asset prices, higher rates push asset prices down,” he concluded.
As experts and economists continue to analyse these differing viewpoints, the focus remains on understanding the potential long-term implications on businesses, investments, and individuals of the fiscal and monetary policies followed by the Federal Reserve post-pandemic recession.
GMO enters ETFs, debuts global stock index fund
Grantham's firm, GMO, has introduced its inaugural exchange-traded fund (ETF), a kind of investment fund traded on stock exchanges. The ETF is designed to track an index reflecting the performance of global stocks excluding the United States.
The ETF launch is a strategic step by GMO to provide investors with an opportunity to diversify their portfolios beyond the US market.
ETFs have gained popularity as they offer a simple and cost-effective way for investors to access a broad range of assets. GMO's decision to launch its first ETF aligns with the current trend of increasing interest in global investment opportunities.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
