Evercore Founder Roger Altman: Too soon to declare victory over recession risk

[00:00:00] Speaker 1: inflation continues to fall the way it has. The commentary comes two weeks before the Fed's next policy meeting. Here to discuss is Evercore Senior Chairman and Founder Roger Altman. Roger, welcome back. I hope you had a nice Thanksgiving. I did, Scott. I hope you did too. I did. Thank you. So what's Powell's next move, you think? Is it a cut? Are they done hiking? I think the answer to that [00:00:22] Speaker 2: is most likely yes, they are done hiking. I don't think that, however, there are going to be cuts until well into 2024. If I had to make a guess, it would be mid 2024. That obviously depends on the flow of data between now and then and how much progress or lack of it we see on inflation. But I don't think anybody expects that in this upcoming December meeting that the Fed will move. It will be steady as she goes, unless there's some shock at the interim, which no one expects. So if you say [00:00:53] Speaker 1: cuts may be mid-24, you know how the markets work, right? They try and get ahead of that by a significant amount of time, whether it is six to nine months. So should I buy stocks now? Does this momentum have legs beyond the end of the year because of that? Well, I think the giant question over the markets, [00:01:15] Speaker 2: Scott, is not the Fed, because it's so likely that the Fed will rest on its oars for the time being and then in a few months begin to ease. I think the giant question is whether the shifting narratives in financial markets four months ago looks like a recession, now looks like a soft landing, no recession. Which of them is right? Now, I listened to your previous guests. It was a very interesting discussion. My own two cents is it's too soon to declare victory over recession risk. I think the odds favor that we avoid it. We do have a soft landing, but I don't think it's sure. You can see some weakening in data, credit delinquencies. The excess pandemic savings among the lower half of the income cohort has gone. That's depleted. And you see the comments, for example, recently from Walmart, suggesting that we're beginning to soften. And I would remind everybody that the U.S. economy grew 4.9% this last quarter. It grew almost exactly at that rate in the third quarter of 2007. And corporate earnings have been tracking at about 5% up year over year based on the latest reports. That's about exactly what it was in early 2008. Now, we're not going to have a repeat of the great financial crisis. Please don't get me wrong. But at the same time, I don't think it's time to pop the champagne on soft landing. A little too soon to know. [00:02:57] Speaker 1: There was a stretch of, I don't know, it felt like a couple of weeks, Roger, where every day it felt like we talked about the deficit and rates were going to be higher for longer and the funding of it, et cetera, et cetera, and the charts being horrible to look at as you move out years ahead. I don't feel like we're hearing about that much these days. How are you thinking about that issue? [00:03:25] Speaker 2: Well, yes, the recent resilience of the economy has been remarkable. A few months ago, half the forecasts out there envisioned a negative fourth quarter, the one we just began, the one we're in now. And now everyone sees the economy growing around 2% this quarter. So the resilience is a big story and it's amazing. But again, I think it's too soon to be sure that that the economy in the face of the fastest monetary tightening in 40 years will sail right through without any serious softening. And too early to say that these many months of an inverted yield curve, which historically has been an unerring signal of recession, won't mean that this time. [00:04:23] Speaker 1: Well, it doesn't always, of course, it doesn't always mean you're going to have a recession, but you never have a recession without it. [00:04:31] Speaker 2: Well, most of the time that you've had an inverted yield curve for this long, you've had a recession. It may not be 100%, but it's much more likely than not, or common than not. Scott, I'm not suggesting we're going to see a recession. I'm just saying that it's amazing how the narrative has been completely reversed. And all the concerns of four months ago now seem to be gone because the interim data on growth, especially growth, on corporate earnings and on inflation has been reassuring. And it has. But do I think it's 100% likely that next year we won't see negative growth? No. I think there's about a 25% chance we'll see a negative quarter or two next year. Not a majority, but far from trivial.