Big Short investor expects Fed stimulus in 2023

Michael Burry, an investor who was featured in the book and movie “The Big Short,” has said that the US will have a recession and more inflation in 2023. He thinks that inflation is currently very high, but it will not remain so. 

Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It’s not hard.

— Cassandra B.C. (@michaeljburry) January 2, 2023

He believes that the Consumer Price Index (CPI), which measures how much prices have gone up, could be expected to go down a lot in the new year and might even go negative in the second half of 2023, causing a recession. 

In June, inflation in the US was 9.1%, which is the highest it has been in 40 years. In November, it was still above 7%. These numbers are much higher than the 2% goal set by the Federal Reserve. Because of this, the Federal Reserve increased the base interest rate, which is the rate at which banks can borrow money, from almost 0% to over 4%, with a plan to make it go even higher in 2023. 

Higher interest rates can help lower inflation by decreasing how much people buy, invest, and work, but they can also make it harder for businesses to make money and slow down the economy, which can lead to a recession and make investment prices go down. 

Burry says that in 2023, inflation will go down and the economy will get weaker. He then expects the Federal Reserve to lower interest rates and the government to spend more money to try to make the economy grow, causing inflation to spike yet again.

Opinion

This seesaw process has always happened since central banks were given control over monetary policy. As the Federal Reserve continues to ramp up interest rates it would appear that it is doing so blindly, given that the increases will take many months before they are properly felt in the market.

The problem will be that once inflation starts coming down significantly, it is likely that the economy will already be in a serious recession, and then the Fed will have to start trying to tip the scales in the other direction by unleashing yet another round of quantitative easing.

The up and down seesaw in the economy is worsening as debt increases and fiat purchasing power decreases. This is why Bitcoin and cryptocurrencies were born. Over a long period Bitcoin might just become that inflation hedge, and out of the crypto sector might arrive a decentralised way of transacting that saves us all from the hell of central banks and their fiat currencies.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.