Jeremy Grantham: Recession Coming & Running Deep Into Next Year

During his recent interview with Bloomberg, Jeremy Grantham is predicting the likelihood of a recession running deep into next year, accompanied by a drop in stock prices. Here’s an excerpt from the interview:

Grantham: The deflationary forces from the tech stocks breaking in 2021 probably too big. The power of interest rates rising and depressing the real estate market, very negative slow-moving influence.

I suspect that they will once again dominate and we will have a recession running perhaps deep into next year and an accompanying decline in stock prices.

Host: So the recession that you’re predicting is probably not going to happen in 2023 but…

Grantham: It may start in 2023.

Host: The Federal Reserve recently said that they think we’ve kind of cleared the recession hurdle and they don’t really project a recession any longer. Do you disagree with the FED on that?

Grantham: Yeah, I think the Fed’s record on these things is wonderful, it’s almost guaranteed to be wrong.

They have never called a recession and particularly not the ones following the great bubbles.

They prided themselves in stimulating the bubbles. They took credit for the beneficial effect of higher asset prices on the economy.

They have never claimed credit for the deflationary effect of asset prices breaking, and they always do.

Host: Now you said not too long ago that you weren’t a big fan of Jay Powell and the way he’s been handling inflation. Is that correct?

Grantham: Yes, that’s correct.

Host: And do you think he’s done a better job recently in getting inflation under control?

Grantham: I think it’s largely out of his hands.

The forces work.

I suspect inflation will never be as low as its average for the last 10 years. That we have re-entered a period of moderately higher inflation and therefore moderately higher interest rates.

In the end, life is simple. Low rates push up asset prices. Higher rates push asset prices down.

You can watch the entire discussion here: