Did the FED just trigger a recession by not cutting rates earlier?

While the U.S. stock market losses on Wednesday, September 4, were less severe than those of the previous day, the state of the U.S. stock market following the Labor Day holiday has gotten investors worried about a possible start of a major crash.

One factor often pointed to as a possible cause of a future recession has been the Federal Reserve’s prolonged period of high interest – far longer than it should have been, according to multiple analysts.

Ryan Detrick, the chief market strategist at the Carson Group, is of the opinion that America’s central bank should have started reducing the Federal funds rate during the previous FOMC meeting, according to an interview he did on September 4.

Detrick also believes the FED has contributed to several cracks in the U.S. economy – such as the rising rate of layoffs – precisely by not loosening its policy sooner:

There’s some concerns there. You look at hirings up 5%, but hey, layoffs up, you know, double digits… there are some cracks out there. That’s why we’ve been in the camp that the Fed probably should’ve cut last time.

Recession in the coming six months ‘extremely unlikely’

Simultaneously, despite believing the Federal Reserve has made an error, the expert remains bullish on both the economy and the stock market and has taken a similar stance to many other analysts – that the ongoing downturn is more of a mid-cycle slowdown than a prelude to a recession.

Detrick also believes the broader technology sector will remain flat for some time but does not see that as an issue for other publicly traded companies and has pointed toward mid-caps as a significant pointer that the market is, generally, still doing well.

In fact, according to   the chief market strategist, the current state of American shares renders a recession within the coming six months exceptionally unlikely. He explained that the stock market remains the best gauge of the state of the economy and that it is still doing well despite the turbulence.

Finally, the expert added that, given the expected September rate cuts, other reports scheduled for release in the coming days, and the November elections, volatility is to be expected.

What is next for the U.S. stock market and economy?

Ryan Detrick is far from alone in his analysis that the current downturn and the upcoming volatility are to be expected but not to be seen as the harbinger of an imminent recession. 

For example, Fundstrat’s Tom Lee argued only days earlier that the stock market is bound for a significant correction – potentially as large as 7-10% – and that the upcoming interest rate reductions and Presidential elections are likely to trigger instability but also that investors should be ready to ‘buy the dip.’ 

On the other hand, some cause for concern extends beyond the ongoing market slump. For example, while the upcoming interest rate cuts are generally seen as bullish for stocks and other risk assets, some, like ‘The Big Short’ investor Steve Eisman, have positioned them as able to burst the current bubble as far back as April 2024.

Additionally, an analysis of the International Monetary Fund (IMF) has determined that the U.S. economy’s 2024 strength has largely been driven by an unsustainable monetary policy and has urged the country to address issues such as rampant debt-taking immediately.

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