Is the US economy on a tailspin into recession?

Judging by analysis by various economic experts, billionaires, investors, players in the stock market, and even officials in the government, the economy is going into a tailspin and markets are set to plunge 40 per cent, a cause for concern as at least six out of 10 Americans put their savings in the stocks hoping to grow their earnings. But ‘Don’t Panic’ is the advice of players in the stock market.

Billionaire and big-time hedge fund investor Leon Cooperman says the US economy will go into a recession and stocks will fall much further. He told CNBC Tuesday the S&P 500 would fall 40 per cent in total from peak to trough. He said the index might not bounce back until it hits 3,000 – 20 per cent below Monday’s close.

US stocks have a long way left to fall, says the hedge-fund veteran Cooperman, who has predicted the economy will tumble into a recession in 2023. A total drop of 40 per cent is what he predicts as he feels recession has battered corporate profits. He said equities were unlikely to head back into a bull market anytime soon. This is based on the trend that in recent times, investors have dumped stocks in 2022 as the Federal Reserve has embarked on what is likely to be one of the fastest interest-rate-hiking cycles in its history in an effort to tame rampant inflation. Even the crypto exchange is down by 86 per cent.

Cooperman founded the hedge fund Omega Advisors, which he now runs as a family office.

According to Bloomberg economic news analysis, traders whose fear of the Fed sent markets hurtling into bear territory on Monday are girding for a long dark night as stocks head for their longest slide in months. Investors are keen to see whether the central bank gives any indication as to whether it will raise rates at a faster clip. Indications are it will as it’s the only option to rein inflation, claimed to be the worst in 40 years.

Stocks notwithstanding, President Joe Biden claimed that US economy was humming with its low unemployment, saying the powerful recovery from the pandemic recession will become more evident when inflation subsides. “I truly believe we made extraordinary progress by laying a new foundation for our economy,” Biden said at a meeting of the AFL-CIO, the biggest US labour confederation, on Tuesday.

In addition to tapping the nation’s Strategic Petroleum Reserve to address high gas prices and working with European partners on plans to get Ukrainian grain to market, Biden cited proposals aimed at bringing down the cost of child care and prescription drugs and said the wealthiest Americans must “pay their fair share” in taxes. “I have a plan to bring down the cost of gas and food,” he said, seeking to position the Democratic Party for the coming 2022 midterm elections for all the 435 seats in the house of representatives on November 8 this year.

“In Europe, a new survey by economists shows many expect the Bank of England to raise interest rates faster and further than anticipated just a month ago as it battles the highest inflation in decades. As for all those investors out there watching their portfolios shrink, remember not to panic,” say analysts in Bloomberg.

The US imposed sanctions on Russian companies and exports, including oil, over the Ukraine invasion. Biden officials now acknowledge that the sanctions affected the US economy. They’re now quietly encouraging some US firms to use Russian products to try to offset the damage, analysts claim.

Though the Biden administration predicted that the impact of those sanctions on the US would be minimal – if it could ensure they didn’t affect US food and energy security. However, rising energy and food costs in the US have become two of the main drivers of inflation, which hit a 40-year high this month.

US Treasury Secretary Janet Yellen privately believes the spike in prices is in part a result of what the outlet called unexpected “self-sanctioning,” referring to US companies’ abandoning Russia entirely to minimise the risk of violating US regulations. Yellen said she was “wrong” to say inflationary pressures would pass.

Seven foods have been hard hit by price spikes this year. From sweets to veggies, the USDA has a list of foods getting more expensive this year. The Russian invasion of Ukraine has caused fertiliser shortages, disrupting farming worldwide, and increasing prices. The climate crisis has also worsened food supply due to unpredictable weather.

President Biden said on Wednesday there is little he can do to lower the cost of gasoline or food in the immediate term, an acknowledgment that prices for those goods will remain high as he works to bring down other costs incurred by families. “There’s a lot going on right now but the idea we’re going to be able to click a switch, bring down the cost of gasoline, is not likely in the near term. Nor is it with regard to food,” Biden said at the White House, where he was holding an event on the infant formula shortage.

Biden and his team are seeking to place heavy emphasis on the economy in the coming weeks as the President looks to demonstrate his commitment to reining in inflation, even as he says there’s not much he can do. The President has tasked his aides with improving the administration’s messaging as he watches his approval ratings sink, say media reports.