U.S. economist David Rosenberg feels vindicated – but no victory lap

David Rosenberg, a renowned economist and market strategist, faced sharp criticism for his forecasts that the Federal Reserve's drastic interest rate hikes would plunge the U.S. economy into a recession. "The past year has been tough," he conceded. However, the latest economic data, such as a marked decline in employment growth in July, may now prove him right. The Japanese Nikkei 225 stock index recorded its biggest drop since Black Monday in 1987 on Monday, fueled by fears of a U.S. recession. In Europe and the U.S., the week also began with negative stock market developments. Rosenberg's expertise is partly based on longstanding experience and his skeptical stance. As early as 2006 and 2007, he warned of a recession, and was again vindicated when the National Bureau of Economic Research later determined that the recession had already begun in late 2007. This time too, he sees the Federal Reserve lagging: while the Fed focused on combating inflation, Rosenberg considered the recession to be the greater threat. He emphasizes, however, that predicting a recession is not a cause for celebration, as it entails human suffering. His reluctance to take a victory lap is explained by the "deeply personal" responsibility he feels towards those affected. The Canadian-born Rosenberg, who founded his own firm Rosenberg Research in 2020, feels vindicated, although critical voices often labeled him a pessimist. Surprisingly resilient economic factors such as pandemic stimulus and aggressive consumer behavior have delayed the downturn so far. However, these supports have now disappeared. Budget deficits no longer contribute to growth, and the savings rate has fallen to a historic low. Other indicators such as increased unemployment claims and weak manufacturing indices point to a slowdown. Recent labor market statistics show significantly slower job growth in July and a rise in unemployment. While optimists hope for a mild recession, Rosenberg remains skeptical. He argues that even if the Fed lowers interest rates, the initial effects will only offset the previous hikes, and true growth impulses are to be expected only at drastically lower interest rates. Finally, he emphasizes his methodology and work ethic. "I am a typical economic detective," he said. "I get up every morning at 4:15 a.m. to write my daily report and work hard for my clients." He explains his resistance to pressure as backbone, not stubbornness. Unrelated but nonetheless noteworthy: A new study shows that the U.S. dollar remains dominant in international currency reserves, despite fears that countries might reduce dollar holdings due to geopolitical tensions.