Back to Research Insights >> As we predicted the US is officially in recession…. except they say they’re not

Sometimes it feels like we’re living in The Matrix, where the reality we are presented with is just an illusion. The US has officially recorded a second consecutive quarter of negative GDP – the standard definition of recession. However, the US Federal Reserve chief Jerome Powell says he doesn’t think the US is in recession… because they’re apparently redefining what a recession means.

He was far more dovish in his speech though, saying that he thinks the cash rate is close to neutral – where the monetary settings are neither stimulatory nor contractionary. He also hinted at the possibility of another (smaller) rate rise in September. The stock market and cryptocurrencies rallied on the news, having already largely priced in the recession and the rate rise. Stocks and cryptos are the canaries in the coal mine when it comes to financial news. This is because they’re effectively real-time barometers of human emotions (greed and fear). If we look at the stock price of REA (, it has also rallied more than 30% since June. This is a good indicator that the market doesn’t believe a property crash is coming either.

Recessions aren’t necessarily bad things for assets – they’re a Darwinian force, clearing out the weak so that the market can return to growth. However, it is probably important to emphasize the difference between Wall Street and Main Street. Asset markets aren’t the economy. Never was it clearer than during the pandemic, where the ten richest men in the world doubled their net worth from $700 billion to $1.5 trillion – at a rate of $15,000 per second or $1.3 billion per day in the first two years of the pandemic. In addition, 573 new billionaires were created during this time. All while many average people on the street lost their jobs.

The secret of the wealthy was simply to hold assets during this time, as they knew that the central banks would drop interest rates to stimulate demand. The increased capital inflows invariably find their way into assets, pumping up real estate prices and stocks, even as the real economy remains weak.

Arguably we’re heading into a similar situation where the RBA will raise rates to fight inflation at the expense of growth and demand. If history is any indication, they will overshoot the mark. We maintain that interest rates will peak sometime in 2022 or in the first half of 2023 as soon as they stabilise the property market will react. Interestingly, mainstream economists are finally coming to this point of view as well. Better late than never! I feel like a broken record saying this, but all we have to do is own good assets and wait.

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