While former President Donald Trump earlier this week was hyping the prospect of a massive economic recession, economist Michael Strain doesn't believe the economic situation is anywhere close to that dire.
Writing in the National Review, Strain bluntly refutes MAGA claims that the American economy is headed over a cliff.
"There is very little reason to believe that the U.S. economy is rapidly deteriorating," he writes. "The U.S. economy is not in recession. And a recession in 2024 remains unlikely."
Strain then explains that the major stock market drop earlier this week occurred primarily because of volatility in the Japanese stock market and not because investors feared America was heading into a recession.
"The Nikkei fell due to a surge in the yen," he contends. "The narrowing gap between U.S. and Japanese rates makes the yen relatively more attractive. Bets that the yen would remain weak have started to look unattractive. The yen carry trade exploded."
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Strain also cautions the Federal Reserve against making an emergency rate cut ahead of its September meeting, as this would likely send equities traders into a panic that would further deteriorate the stock market.
Additionally, argues Strain, the health of the American economy is about a lot more than how the stock market is performing on a given day.
"A 10 percent sell-off in equities — and the associated changes in other asset classes — would be expected to reduce GDP growth by less than one percentage point over the subsequent year," he notes. "Given expected GDP growth, this would not be enough to induce a recession."
