Investors weigh the possibility of a recession. Guggenheim Partners Investment Management chief investment officer of Anne Walsh sits down with Yahoo Finance's Brad Smith, Madison Mills, and Julie Hyman on Morning Brief to discuss her base case for the US economy and what could catalyze a recession.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
But I do know that your, um, potential for a recession, the chances you're putting for a recession are higher right now than they usually are at 35%. Um, how do you put that together and are tariffs sort of the determining factor in that potential recession case?
So, tail risk has definitely increased. And again, part of the uncertainty and the volatility, I mean, if you had to pick a few words to describe 2025, it also sort of sounds a lot like 2024, only more so. Last year we were of course really worried about what was going to happen with the election. Now we had the election. Now we have to worry about what's going to happen between politics and policy, uh, and this volatility is driving, again, as I said, the narrative. Um, the other aspect that we're also not used to is a level of transparency when it comes to the level of negotiations that we're seeing out of Washington. And frankly, sentiment's going to drag in here because between now and mid-year, when we finally actually see Congress act and potentially pass the big beautiful bill, put that in air quotes, um, then then we're we're going to see a lot of this this volatility, um, because we're waiting for Congress to act. We're here hearing and seeing all these executive actions and orders, and all of this is moving the markets in real time, in a way that frankly markets don't really like. We like certainty, and we have a lot of uncertainty. And if you think about the four major sort of pillars, if you will, of the Trump administration, which is immigration or what I'm tending to refer to now as reverse immigration, um, tariffs and trade, taxes and deregulation, all of this is playing out in real time, and it's moving markets because we're trying to react to, um, uh, all the promulgations. And frankly, the on, then off, then on, and then off again narrative is also challenging both stocks and bonds at this point in time. And so, yes, it doesn't feel like a smooth trajectory, um, because of all of the noise.
What would tip us into recession at this point? Would it be if we don't, for example, get the big beautiful bill, get the tax cut extension or additional tax cuts?
Quite clearly, if we don't see the policy implementation by mid-year, that could potentially slow down the economy much more. Um, right now our base case is for, we'll call it 1.8-ish, um, on real GDP. Um, trend line GDP in the US is around 2%. So if we fall below that, then we get the slowing effect, and again, that's good for inflation, and we can see interest rates sort of fall relative to where we are today. By the way, we're in a trading range on the 10 year sort of between mid-threes and mid-fours is about where we would expect ourselves to be. But if we don't see action and certainty begin to evolve in terms of policy, and then clear indications for the market, I think then what you end up with is is business managers slow down capex purchases, uh, they don't want to make investment decisions, and all of that then could increase the risk of that recession, uh, impulse in the in the economy.