Bob Doll: Recession May Be Inevitable, Despite Rate Cuts

What You Need to Know

It’s too soon for the Fed to declare mission accomplished on inflation, the market prognosticator writes.
Labor conditions and history suggest that a recession is likely unavoidable.
Stock valuations, at 21 to 22 times earnings, are historically high.

The Federal Reserve is likely to run out of time soon to return inflation to its target without a recession, despite the interest rate cuts that the central bank is widely expected to start this month, according to Crossmark Global Investments CEO Bob Doll.

Doll, who also serves as chief investment officer and is best known for his annual 10 Predictions list, suggested in his weekly newsletter Monday that investors’ bullish assumptions about rate cuts’ effects on stocks may miss the mark.

Labor demand suggests that the Fed is unlikely to wrangle inflation back to the long-term 2% target before avoiding a recession, even with the anticipated first rate cut since the pandemic’s onset, Doll said, noting that inflation, per the core Consumer Price Index, remains over 3% year over year.

“Equity investors are likely to continue to treat the onset of easier monetary policy as a bullish catalyst for stock prices over the near term, but this view assumes that the Fed will be able to successfully return the unemployment rate, inflation and interest rates all to equilibrium levels,” he wrote.

“In the post-WWII environment, there have been no cases in which the Fed avoided a recession once late-cycle rate cuts began in the context of a rising unemployment rate,” according to Doll. “Labor demand is already weakening, which in past cycles has shifted quickly into a recessionary rise in unemployment.”

Crossmark maintains its underweight stance toward risky assets.