A prominent financial advisor has warned of an impending recession, partly triggered by the ‘brutal impact of rising rates.’
In his outlook, Kurt S. Altrichter pointed out that the iShares 20+ Year Treasury Bond ETF (TLT) performance has plummeted significantly from its peak, reflecting the devastating effect of the Federal Reserve’s aggressive interest rate hikes, he said in an X post on January 11.
The expert’s data indicated that the TLT chart has plunged 52% after peaking, a possible warning signal of an impending economic downturn.
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Notably, the TLT, which tracks long-term U.S. Treasury securities, is a key economic barometer. The bond decline raises concerns since the product has traditionally been viewed as a safe-haven investment in periods of slowed economic activity.
To this end, Altrichter highlighted two specific conditions under which bonds are particularly worth buying: when a recession is on the horizon or when inflation is decelerating rapidly.
Given the current economic climate, this steep decline in TLT suggests that bonds might be heavily oversold. This offers a potential buying opportunity as inflation cools and bond prices are expected to rebound.
In this line, the inverse relationship between bond prices and interest rates explains TLT’s steep decline. Specifically, rising rates lead to new bonds with higher yields, making existing bonds with lower yields less attractive, driving their prices down.
This drop impacts TLT and signals potential economic stress, as such declines often precede slowdowns or recessions.
However, the timing remains uncertain. Altrichter suggested that while buying TLT now may prove wise in five years, investors might need patience. A recovery hinges on cooling inflation, which would boost the value of existing lower-yield bonds.
Premature Fed rate cut decision
In late 2024, after previous interest rate hikes, the Fed moved to ease monetary policy, cutting the rate by 25 basis points on December 18 to 4.25%-4.50%, its lowest since February 2023.
This marked the third rate cut of the year, following reductions in September and November, as the Fed responded to a cooling economy while managing elevated inflation.
At the same time, although the Fed has signaled fewer interest rate cuts for 2025, Altrichter pointed out that the aggressive rates witnessed in late 2024 might have been ill-timed.
Therefore, he believes this decision is premature, warning that inflation could rise further amid looming market turbulence. He predicted that inflation would climb above 3% by the end of Q2 2025, potentially triggering an over 10% market correction by late June or early July.
The financial advisor added that, besides these projections, there remains some uncertainty about Donald Trump’s evolving policy agenda during his upcoming second term in office.
More concerns about heightened inflation
It’s worth noting that the concerns over a possible surge in inflation escalated after the December 2024 jobs data release.
As reported by Finbold, analysts believe that the unexpectedly strong labor market will likely cause inflation to spiral out of control, forcing the Fed to maintain higher interest rates for longer.
Other market players have also raised concerns about a potential economic crash. For instance, in a Finbold report, economist Henrik Zeberg warned that the economy is heading for the worst crash in history, suggesting that the recent rate cut may be too late.
Similarly, investor Robert Kiyosaki believes the market crash is underway, though his global economic projections remain disputed.
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