Thanos Papasavvas, founder and CIO at ABP Invest, estimated Monday that the probability of a “hard recession” is limited, standing at around 10%. In addition, Papasavvas argued that the improvement in unemployment rate will make it difficult for the Fed to pause in the near term, citing last week’s strong jobs report.
“We think that unemployment rate should start stabilizing and moving higher whether it’s the initial claims or the NFIB hiring plans.” CIO said in an interview with CNBC.
Meanwhile, ABP predicts that the Fed will over tighten in Q1, with rate cuts unlikely later in the year. In terms of inflation, the firm does not think inflation will go below the Fed’s 2% target. Rather, the firm sees it stabilizing between 3% and 4%.
“The sort of the 3% will become the new 2% at the end of the day and there will be some acceptance in that in terms of the recession,” he said.
Last week, the government released a strong jobs report that showed nonfarm payrolls expanding much more than expected in January. A strong labor market is seen as an inflationary pressure at a time when policymakers are struggling to bring inflation down to 2%.
For more on recent market action, see why Seeking Alpha contributor Mott Capital Management says that “the stock market appears to be grossly mispriced relative to rates.”