Strategist: Recession within the US is imminent and “a couple of rate of interest cuts” is not going to stop it

An Aldi supermarket in Alhambra, California, USA, on Thursday, June 27, 2024.

Eric Thayer | Bloomberg |

Contrary to popular belief, investment research firm BCA Research believes that the economy is on the verge of a recession and that the Federal Reserve's forecasted upcoming interest rate cuts will not be enough to lead the markets out of this crisis.

“Every single one of us now believes there is a recession, and that is exactly the opposite of what the market believes,” Garry Evans, chief global asset allocation strategist at BCA Research, told CNBC's “Squawk Box Asia.”

Evans pointed to signs of a slowing economy, including the “deteriorating” U.S. labor market. The U.S. Labor Department reported that the unemployment rate rose to 4.3% in July, the highest since October 2021, and an indicator of U.S. manufacturing activity fell to an eight-month low in the same month.

“There are things that are collapsing pretty quickly right now,” the strategist said.

According to the CME FedWatch tool, Fed funds futures markets indicate that investors expect at least three interest rate cuts by the end of the year.

But Evans says this will not significantly affect his forecasts.

“A few rate cuts will not prevent a recession. The average recession lasts 10 months… It takes about a year for the Fed's rate cuts to actually start to give the economy a boost,” he said.

“The market expects the benchmark interest rate to be 3% at the end of next year. It is currently 5.3%. That will not happen unless there is a recession,” he added.

A recession typically occurs when a country's real GDP declines in two consecutive quarters.

Traders are also keeping an eye on the annual economic policy symposium in Jackson Hole this week, which could provide more clarity on the interest rate outlook, as Fed Chair Jerome Powell is scheduled to speak at the event on Friday.

The US economy has remained robust despite persistent inflation and high interest rates.

There have been more than a dozen recessions in the last century, some of which lasted up to a year and a half.

Although the United States is not officially in a recession, a survey conducted by Affirm shows that about three-fifths of Americans believe it is.