Billionaire Michael Bloomberg sends hard-nosed message on economy
The U.S. economy could be at a critical point.
For years, the U.S. government has embraced breakneck spending, causing larger deficits and soaring debt levels that may require trillions of dollars in interest payments over the coming decades.
The economic situation could have a dire impact if it means the government is forced to restructure its debt, something billionaire Ray Dalio has previously suggested.
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The risk of a potential economic reckoning isn’t lost on those who have seen a thing or two over decades of analyzing markets, including Michael Bloomberg, the billionaire founder of the Bloomberg terminals commonly found on the desks of most major hedge funds, mutual funds, and trading operations.
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Bloomberg recently weighed in on the economic challenges, delivering a blunt assessment that every investor should consider.
The Federal Reserve has put itself in a corner.
In 2021, Fed Chairman Jerome Powell tried to argue that inflation was transitory, only to backtrack shortly afterward as the Fed embarked on the most restrictive and hawkish monetary policy since Fed Chair Paul Volcker battled inflation in the early 1980s.
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Powell’s war on inflation worked, but it came at a cost. While inflation has retreated below 3% from over 8% in 2022, higher interest rates’ impact on economic growth has led to unemployment climbing to 4.1% from 3.5% as recently as 2023.
The upturn in joblessness prompted the Fed to lower its benchmark Fed Funds Rate in the fourth quarter of 2024. However, we’ve yet to see any improvement in the jobs market, and the rate cuts appear to have re-sparked inflation, given the Consumer Price Index showed inflation at 2.8% in February, up from 2.4% in September.
Worse, sticky inflation and job loss are coming alongside a deceleration in economic growth.
The Atlanta Fed’s GDPNow forecasts a first-quarter GDP of negative 3.7%. While that’s likely to improve as more data becomes available, it appears very likely that the first-quarter GDP will be far shy of the 3.1% pace during the second and third quarters last year.
Given consumer confidence levels, matters could get worse. The Conference Board’s Consumer Expectations Index is 65, far south of the 80 level that has signaled recessions in the past.
The short-term outlook for the economy is tenuous. However, the long-term outlook could be downright dangerous.
