Karen Karniol-Tambour, co-chief investment officer of Bridgewater Associates, the world’s largest hedge fund, warned of recessions that are very different from previous ones in an interview with Bloomberg last week. In the interview, she discussed the next big risk she predicts for the economy – recessions that are deeper and longer than what we’ve been accustomed to.
She said that in previous economic downturns, “central banks could just hop right in and reverse it,” but this time, the markets are on a different turf as the central banks are involved in the recession. Karniol-Tambour believes this has caused a shift in the narrative, with fiscal policymakers now playing a part in the story. She claims they are much more likely to step in with big fiscal expansions.
Karniol-Tambour believes the constant interest rate hikes along with the printing of excess money are the root cause of the disaster. She explained that the Covid pandemic was a turning point as for the first time fiscal policymakers got “deeply involved in solving the problem.”
“Monetary policy on the one hand will be less important because fiscal will be doing what it’s doing,” she said. Conversely, they will encounter a more extreme inflationary issue due to the constant inflationary forces and economic policymakers stimulating simultaneously.
Karniol-Tambour warned that this could lead to recessions that are “much more difficult” and “much more painful” than what we’ve been accustomed to. She also noted that the risks of this are exacerbated by how fast the pace of de-globalization is going to be.
In December of last year, Blackrock, the world’s largest asset manager, made similar statements that we are heading into a recession that is “the opposite of past recessions”. President Joe Biden declared last week that he does not expect the American economy to fall into a recession in either 2021 or 2022.
0. “Bridgewater's CIO warns of a deeper, longer and “much more painful” recession than we are used to” Royals Blue, 13 Feb. 2023, https://www.royalsblue.com/bridgewaters-cio-warns-of-a-deeper-longer-and-much-more-painful-recession-than-we-are-used-to
1. “Bridgewater CIO Warns of a ‘Painful & Much Longer Recession' Than Expected” Watcher Guru, 13 Feb. 2023, https://watcher.guru/news/bridgewater-cio-warns-of-painful-longer-recession-than-expected