The economy may be at a crucial turning point.
Investor Peter Boockvar warns that the Federal Reserve will not be able to contain soaring inflation significantly and that consumers will not be able to bear much more.
“It comes down to the question, when does the consumer blink at this price hike,” the Bleakley Advisory Group CIO told CNBC’s “Fast Money” on Wednesday. “On the low-end consumer, they’re already starting to flicker.”
A TransUnion study released this week reflects the problems of consumers with the “riskiest credit profiles” in the form of rising credit balance trends and delinquency rates.
Boockvar believes the report is a harbinger of what lies ahead. In a note published this week, he warned that consumers are at a “fork”.
“Consumer will put a stop to spending due to the continued rise in prices,” he wrote. “It’s unavoidable because price matters to the discount-loving American consumer.”
Boockvar, a Fed critic, believes all income levels are at breaking point. He warns that they are about to delay their purchases until prices fall, which would have painful consequences for the economy in general. That would jeopardize Fed Chairman Jerome Powell’s view that a recession can be avoided.
“This will be the most aggressive cycle of tightening in over 40 years between rate hikes and balance sheet contraction,” noted Boockvar, a CNBC contributor. “Given the dependence of economic activity on cheap money, the dependence of markets on cheap money, I don’t see how a soft landing can be achieved.”
Still, Wall Street seemed to accept the Fed’s half-point rate hike and Powell’s press conference. The S&P 500 had its best day since May 2020.
Boockvar expects the rebound to evaporate.
“If there’s little chance of a soft landing, which means we’re going to have a recession, that means earnings numbers are going to have to come down,” Boockvar said.