Taps Coogan – May 6th, 2022

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Creator of Yardeni Research and author of ‘In Praise of Profits,’ Ed Yardeni, recently spoke with Bloomberg about what he sees as the chances of a recession in the US and Europe. Not one for ‘doomish’ predictions, Mr. Yardeni has nonetheless raised his odds for a recession in the US this year or next year to 30%, while warning that a recession in Europe is more likely than not. He also sees inflation turning down but running “higher for longer” relative to the Fed’s 2% target.

Some excerpts from Ed Yardeni:

“We’ve had two years of helicopter money and that was the easy was to deal with the crisis of the pandemic, but now we’re paying the price for it with inflation. The stock market can’t have a tapering tantrum here and expect that the Fed’s going to respond because inflation is much more severe…”

“I know there is a lot of concern here that the risk of a recession have increased and they certainly have increased. In my mind, they have come up from 15% before the war to 30%… But one of the reasons (that) I am not concerned that we’re going to fall into a recession here is that the consumer sector is in very good shape and the corporate sector is in phenomenally good shape… There is still plenty of liquidity left over from the last two years of helicopter money… If you ask me about Europe, it’s more like 50%-60% (chance of recession) for this year…”

“I think we are going to see some moderation here in consumer durable goods inflation, which has really been the heart of the inflation problem… The problem is that within the services inflation, the rent inflation is going to be going higher for the next two years. So I think we are looking at ‘higher for longer’ inflation… That doesn’t mean it isn’t going to come down. I just seriously doubt we are going to see 2% inflation anytime soon… not in the next 12 to 24 months. But will it come down to 3%-4% next year…? I think that’s doable…. We learned to live with it and I think we’ll learn to live with 3%-4% inflation… I see like $3 trillion of excess liquidity left over from the last two years of helicopter money…”

Dare I say, I think Mr. Yardeni may be over-estimating the strength of the US consumer and how quickly they can burn through the remaining liquidity. 

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