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Fed Expert DiMartino Booth: Are We Heading Toward Recession — or Worse?

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If the current economic crisis gets much worse, we may have to stop discussing the possibility of a recession and instead start worrying about it leading to something even worse, according to Danielle DiMartino Booth, CEO and chief strategist for Quill Intelligence and a former advisor to the Federal Reserve.

Stock indexes closed down more than 5% on Wednesday; the S&P 500 tumbled 9.8% before recovering in afternoon trading. The yield on 10-year Treasurys rose 14 basis points to 1.21% (prices fall as yields rise), and oil dropped 24% to an 18-year low.

Asked by Hedgeye CEO Keith McCullough during a webcast Wedesday what happens when stocks and Treasury bonds “go down at the same time,” DiMartino Booth replied: “Aren’t we witnessing that today? What happens? I mean what happens is you start to get rid of the recession vernacular and you start to introduce a different word into the vernacular that starts with a D and it’s not my name.”

Earlier in the webcast, “Market Carnage: What May Come Next,” she said now that U.S. jobs are expected to be lost in large numbers and the Fed already slashed the federal funds rate to between zero and 0.25%, “this is unfortunately when the Fed has to do what it’s not been able to do for generations and step back and say, ‘You know what? Our tool kit’s empty.’”

“This is a national emergency in the private sector,” she said, adding that “because D.C. dragged its feet for as long as it has, there are rumblings out there about whether or not this is going to be a recession or something worse.”

As it stands now, she expects Fed Chairman Jerome Powell is “willing to do whatever it takes to prevent this credit market from completely imploding under its own weight, but we have to remember that this involves Congress,” she said.

She predicted the Fed will be forced to try and push for changes to the Federal Reserve Act so it can buy stocks. “If this is not a V-shaped recovery … if you think it’s even going to be an L-shaped recovery, given that the Fed has already used so much of its ammunition already, I think reopening the Federal Reserve Act is definitely one of the steps in the process in order to give the Fed the same legal authority” that the Swiss National Bank or the Bank of Japan have, she said.

DiMartino Booth also criticized the claim by many industry analysts and others that this is a situation nobody saw coming. Most people might not have seen coronavirus coming until late 2019. But she said: “I call BS because the economy worldwide and here in the United States …  has been slowing for a while.”

She pointed to declining retail sales and increased jobless claims in the U.S. as evidence of a slowing economy before the coronavirus mushroomed into the major crisis it has in the country this month.

While the current crisis is “similar to 9/11 in terms of a shock to the economy,” she said the 2001 recession was “pretty shallow and pretty short, and I don’t think that’s the flavor of recession that we’ve got coming our way right now.”

Another factor: “Remember, we’re coming out of an 11th year of economic expansion” and the Fed, along with central banks around the world, have “done whatever they can to hyperinflate asset prices,” she said. What’s more, in terms of the sheer “rapidity” in which we’ve seen “asset prices collapse,” we have “never seen anything this fast — not even if you go back to 1929,” she noted.

Analysts, meanwhile, had been “pretty slow to bring down” their earnings forecasts for many companies’ earnings, despite the fact that many publicly traded companies have been declining to provide guidance, she pointed out. She added: “If a company can’t tell you what the outlook is, how can an analyst tell you what” an earnings-per-share estimate is “going to be going forward?”

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© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.