Investor Michael Burry has warned that the U.S. economy is likely to see a trend into the negative side in inflation before a rise is witnessed this year. Burry gained fame after foreseeing the burst of the U.S. housing bubble before the financial crisis of 2008. Burry predicted on social media that as the economy slows and the U.S. Federal Reserve acts to bolster a slumping economy, inflation would rise again as part of the same cycle. This comes after the U.S. central bank also predicted interest rates will be higher than those indicated by investors, hitting 5.1 percent in 2023.
Burry, who was represented by Christian Bale in the film “The Big Short,” stated that he anticipates the Fed will ultimately decrease interest rates to boost economic growth, leading to another round of inflation.
“The rate of inflation peaked. However, it is not the cycle’s last peak.” He tweeted on Sunday that “we are likely to see [the consumer price index] lower, potentially negative in 2H 2023, and the U.S. in recession by any definition. Fed will reduce, but the government will increase. And there will be another increase in inflation. It’s not difficult.”
Business cycles are determined by the National Bureau of Economic Research (NBER) using a range of variables. Although the current time may have some signs of a recession, the organization has not formally proclaimed a depression.
“A considerable fall in economic activity that is distributed across the economy and that lasts more than a few months” is how NBER defines a recession. The depth, diffusion, and duration of a downturn are the three key characteristics that make up this term, which covers a wide variety of economic factors.
The likelihood of a recession developing within 12 months was estimated by economists surveyed by the Wall Street Journal in October at 63%, up from 49% in July. To contain inflation, the Fed has gradually increased interest rates, which has increased borrowing costs and caused firms and individuals to cut down on spending.
What this means for crypto
Recent years have shown that the recession has had a substantial impact on the price of bitcoin as well as other cryptocurrencies. We may witness a surge in BTC in Q4 2022 if this forecast comes true and the recession materializes. Previously, when inflation readings dropped, Bitcoin values soared. This may be advantageous for the cryptocurrency markets because the price of many different cryptocurrencies moves in lockstep with that of Bitcoin.
However, because of the hazy economic environment during a recession, most investors may choose to remain with “safe investments.” Retail investors would prioritize less volatile assets like bonds unless they are ardent supporters of Bitcoin, Ethereum, and other blockchain initiatives. Hence amid a recession, the likelihood of a bear market should also not be ruled out.