“Whether the recession causes the defaults or the defaults cause recession, I don’t know how the causality runs,” said Minerd at the World Economic Forum in Davos. “But I think, you know, we’ve got some runway left. I think another year or so of this before the defaults start to kick in. But, you know, we’ve got a little bit of a flavor for it over the last six weeks with some of the things we’ve seen in the corporate bond market, and I think we’re just getting warmed up for the real party.”
The Federal Reserve raised the federal funds rate four times 2018 and in its last rate hike in December, the central bank is expecting two more for 2019. However, Minerd feels that if the economy is growing faster than expected, more rate hikes could come–a scenario that could make things more tenuous for these indebted corporations.
“The Federal Reserve, I think, will get back into the interest rate hiking mode,” he said. “We’re beyond full employment. The economy is growing faster than potential. And somewhere, you know, in the next six to 12 months, I think the Fed is going to realize, you know, inflationary pressures are mounting, and they’re going to have to react to it.”
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