The global head of credit for Vanguard — the second-largest global asset manager with $8.6 trillion in investments — has warned that there are signs the United States could slip into an economic recession in the second half of 2024. Chris Alwine, who leads the global credit team at Vanguard, says he believes the Federal Reserve hasn’t yet pulled off its ‘soft landing’ and that strong jobs numbers will likely delay any interest rate cuts until much later in the year.
“The challenge that the Fed has is that to be able to land that soft landing, which is always a low probability, they have to be able to ease policy at the exact correct time, which is difficult, and they need a little bit of luck,” Alwine said in a recent interview with Barron’s. He added that 2024 is likely to be “a tale of two halves” with greater economic risks emerging in the 3rd and 4th quarters.
“What would precipitate that shallow recession is that corporations are just not hiring, with a modest increase in layoffs,” Alwine noted.
Strong job market numbers over the past few months, cheered by the Biden government, will likely cause the Federal Reserve to push back an expected cut to interest rates until at least the 3rd quarter of 2024. With rates remaining elevated, layoffs in capital-intensive industries are likely to continue — eventually causing the hot job market to cool.
Despite the positive employment reports, voter confidence in the economy remains low. High interest rates, continued worries about inflation, sluggish GDP projections, and fears of a recession are all likely drivers of President Joe Biden’s low economic approval rating.
