Four industry experts believe that the U.S. can avoid a recession over the next 12 to 18 months, although it will be close and will heavily depend on the course of action taken by the Fed.
On Wednesday, Franklin Templeton Investment Services held a panel discussion entitled “What Lies Beneath: Finding Opportunities in a Volatile Environment.” During the discussion, four industry experts from various parts of the investing world commented on the state of the economy and the impact of rising interest rates and inflation.
The prevailing concern centers on the possibility that the U.S. could fall into a recession.
Jeffrey Schulze, director and investment strategist at ClearBridge Investments, who moderated the event with strategists from other Franklin Templeton subsidiaries, indicated that from how he tracks the market, he is seeing a strong expansion color. However, he indicated that the industry is starting to see some weakness under the surface. He was specifically referring to recent labor number statistics. The initial jobless claim increased significantly to 229,000 during the week ending June 4 from about 215,000.
Schulze said those numbers show that overall regular jobless claims remained low at about 1.306 million, which lowered the four-week average to less than 1.302 million, which is the lowest since 1970. He described those numbers as good news for the economy.
John Bellows, a portfolio manager with Western Asset Management, said he was also confident that the U.S. could avoid a recession, but said there are still troubling signs. Among them include rising interest rates, soaring inflation and the outlook on Federal Reserve policies. The Fed approved a 75 basis point hike to interest rates this week and indicated it might do it again in July.
In addition, Gene Podkaminer, head of research at Franklin Templeton Investment Services, said that the strong labor market could be enough to stave off a recession, or at least delay one.
“At this point we are not concerned about a recession in the U.S. in the short-term,” he said.
He added that one of the things that makes the economy so interesting right now is the divergence taking place throughout the global markets. Global economies are no longer synchronized, he said. As an example, the U.S. and China have tightened their fiscal policies at different times: as one tightened them the other loosened them.
Inflation was a major topic of discussion as prices continued to soar to record highs this year. Podkaminer said investors should look toward asset classes that will provide them with true inflation hedges. He indicated that Treasury Inflation-Protected Securities (TIPS) and inflation-linked bonds provide the tightest hedges against inflation, although their yields tend to be low or even negative.