As a result of the rising inflation in 2022, the US financial regulator was forced to approve a more stringent monetary policy, which suffocated every risk-on investing instrument and drove down prices in both stocks and cryptocurrencies.
The US economy will enter a recession and see a new round of inflation in 2023, according to ‘The Big Short‘ investor Michael Burry, in a tweet shared on January 2, by the man renowned for his bleak but frequently correct forecasts.
Burry warns the inflation rate has reached its highest point, but this will not be the last peak of this cycle. The Consumer Price Index (CPI) will drop much more in the new year, and it may even become negative in the second half of 2023. A decrease of this magnitude will bring about the recession that everyone anticipated would occur one year ago.
US inflation figures
The US inflation rate reached a 40-year high of 9.1% in June and stayed over 7% in November, which are well beyond the 2% objective set by the US Federal Reserve. After this, the central bank increased its base interest rate from near-zero to more than 4%, indicating that this rate would reach a peak of more than 5% in 2023.
By discouraging consumption, investment, and employment, higher interest rates work to ease inflationary pressures. But they may also reduce business earnings and dampen economic growth, which in turn can cause asset price drops and a recession.
According to Burry, inflation will fall, and the economy will weaken in 2023, leading to the Federal Reserve cutting interest rates and the government increasing expenditure to stimulate growth, which would increase demand and lead to an increase in inflation.
Burry’s billion-dollar bet against the housing boom of the mid-2000s was made famous in “The Big Short” book and film. He invested in GameStop (NYSE: GME) before its stock rose at the beginning of 2021, betting against Elon Musk’s Tesla (NASDAQ: TSLA) and Cathie Wood’s flagship Ark Innovation fund last year.
Last summer, the Scion Chief warned investors that the “greatest speculative bubble of all time in all things” was unfolding, predicting that the price of meme stocks and cryptocurrencies would crash, ushering in the “mother of all crashes.”