Vanguard: US Economy Likely to Enter Recession

According to Vanguard, the tightening of credit conditions following the recent bank failures will push the US economy into a mild recession in the second half of this year.

“We believe that tightening credit standards will push the economy into recession in the second half of this year,” Roger Hallam, head of global interest rates at Vanguard, the world’s second-largest investment advisory firm, said in a online event yesterday.

A LOT OF UNCERTAINTY

Hallam, who expects interest rate volatility to remain high in the near term, said there is pressure on US Treasury yields, saying: “There is a lot of political uncertainty right now.”

Hallam said the 10-year US Treasury yield is a good opportunity for investors to offset declines in risky assets such as stocks in a possible recession.

YELLEN: BANKS WILL BE MORE CAUTIOUS

US Treasury Secretary Janet Yellen also said in her speech this weekend that banks will now tread more cautiously and the need for the Fed to raise rates will probably disappear.

“Banks will probably be a bit more cautious in this environment,” Yellen said. “We have seen some tightening in lending standards in the banking system and there may be more.”

Yellen said this would lead to a “credit squeeze” that “could supersede any other rate hikes the Fed has to do.”

Markets expect the Fed to raise rates another 25 basis points at its May meeting.