A U.S. economist is making a significant prediction about a stock selloff stemming from banking sector concerns.
During an appearance on “Mornings with Maria,” MacroMavens President Stephanie Pomboy sounded the alarm on the U.S. banking system, predicting a “credit bust” comparable to the Great Recession.
“I think actually we’re overvalued by the standard stock market cap to GDP by $20 trillion. So that’s roughly a 50% haircut,” Pomboy explained. “And I think we’re at the beginning stages of a credit bust that I believe could look a lot like 2008, 2009 in magnitude.”
Pomboy’s key point of concern surrounds companies not being able to afford higher rates as $1 trillion of corporate debt rolls over this year.
“There’s always going to be companies that are over-levered. If you want a vector for real challenges that it looks like 2008, I’m not so much worried about a broad corporate sector, particularly very large companies are not tremendously levered, what you might look at… is commercial real estate,” said Thornburg Investment President and CEO Jason Brady in response.
“Commercial real estate’s about 75% of the size of the residential real estate market. So not as big, but pretty much a similar scale. And you know, looking around New York, there’s a lot of vacancy,” he explained.
Meanwhile, Federal Reserve officials are now divided on whether to hike interest rates again in May.
The next FOMC meeting is scheduled for May 3.
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New York Fed President John Williams says an additional rate hike is needed to bring down inflation.
“We need to do what we need to do in order to make sure we bring the inflation down to 2% the next few years,” Williams told Yahoo Finance Live on Tuesday.
On the other hand, the Chicago Fed President Austan Goolsebee called for patience.
“Given how uncertainty abounds about where these financial headwinds are going, I think we need to be cautious,” he told Reuters Tuesday. “We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation.”
Brady said March CPI is “critically important” to the Fed’s decision-making “particularly in May.”
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“But looking forward, whether they go 25 basis points or not is frankly irrelevant. The question is how long are they going to be able to stay at these levels? History would suggest the Fed doesn’t get that rate right very often,” he said.
Inflation eased in March to 5%, but core prices remain stubbornly high.
FOX Business’ Megan Henney contributed to this report.