January 10, 2024
By Harris L. Kempner, Jr., President

With the worldwide complications of two wars added to our fundamental analysis, we are firmer in our belief that a recession will be underway in 2024, most likely beginning with negative economic growth in the first quarter and continuing on for at least one more. Of course, the most important economic rationale for this is the Fed tightening, which has led to a yield curve inversion that has been going on for some 310 days now. It typically takes 380 days for the inversion to affect a significant slowdown in the economy. We think that is in process right now.

Lots of signs indicate a slowdown. Among the more important ones are wage increases that are slowing from about 4.4% in the third quarter to around 4% in the fourth quarter according to economists like Nancy Lazar with Piper Sandler. What is maybe more interesting in terms of Fed policy, and which could make things much worse, is that for the first time in about 50 years, the Fed has tightened rather than pausing or easing after a financial crisis. Recently, Evercore ISI listed 13 financial crises over the last 52 years, from Penn Central in 1971 (remember that?) to the banking crisis this spring. This year’s incidence is the only example of the Fed tightening after such a financial crack. This absolutely raises the odds of another financial shock, and this along with slowing labor growth and rapidly lowering inflation, is another indication to us of a recession beginning in the first quarter of 2024.