Economist Darius Dale, founder and CEO of 42 Macro, has forecasted a US recession between Q2 to Q4 of 2023, which could significantly impact global growth. Dale’s predictions are based on various economic indicators, and he warns against chasing further upside at current price levels. He suggests that investors should start lightening up on risk.
In a video interview, Dale expresses concerns about the Federal Reserve’s ability to react quickly to adverse developments in the economy. He emphasizes the potential for a 20-30% or even 100% market decline before the Fed takes action, with high inflation levels of 4.3-6.8% acting as a lagging indicator in identifying the start of a recession. Dale also argues that the Fed’s focus on unemployment forecasts may hinder their ability to act on inflation, exacerbating economic damage.
Dale discusses global liquidity cycles, noting that key metrics such as central bank balance sheets, narrow money supply, and FX reserves have peaked in early 2023 and are now inflecting negatively. He believes that while global growth may continue for another quarter or two, the US recession will ultimately impact the global economy.
Considering the imminent recession, Dale expects a meaningful impact on markets, with even a mild recession potentially leading to a new market bottom, distinct from the 2022 downturn.
42 Macro CEO Darius Dale’s warning about the potential US recession and its global impact has raised concerns among investors and policymakers. Dale believes that the Federal Reserve’s current focus on unemployment forecasts may compromise its ability to respond to inflation, thereby failing to prevent further economic damage. With US inflation remaining high and acting as a lagging indicator, the situation becomes increasingly precarious.
The negative inflection of global liquidity metrics—such as central bank balance sheets, narrow money supply, and FX reserves—also points to a potential downturn. While global growth may continue for a brief period, Dale anticipates that the US recession will eventually disrupt the global economy.
As the likelihood of a recession grows, Dale advises investors to lighten up on risk and be cautious about pursuing further upside at current price levels. The expected recession could have a significant impact on markets, even leading to a new market bottom that differs from the 2022 slump.
In response to these concerns, financial experts and institutions worldwide are closely monitoring the situation and assessing strategies to mitigate the potential fallout of a global economic slowdown. Governments and central banks may need to coordinate their efforts to support economic growth and stability.