Screenshot via Bloomberg TV
- The resumption of student loan payments combined with interest-rate hikes will fuel a consumer-led recession, David Rosenberg warned.
- The economist said it generally takes six months after rate hikes of 500 basis points for a downturn to hit the economy.
- Rosenberg has been bearish on markets and the US economy for a while, and has faced backlash over it.
The Federal Reserve's aggressive hikes to interest rates, coupled with student-loan payments resuming in October, will pave the way for a consumer-led recession, according to top economist David Rosenberg.
After a three-year pause, the federal government will start charging interest on federal student-loan balances once more, and student-loan borrowers will start making payments again in October. The resumption comes after the Supreme Court blocked President Joe Biden's plans to forgive up to $20,000 in student debt for federal borrowers.
The loan repayments, combined with higher interest rates, threaten to to trigger a consumer slowdown, Rosenberg said in a CNBC interview. The Fed has already lifted interest rates from almost zero to over 5% since last spring in an effort to bring inflation down to its 2% target, and traders are bracing for more hikes later this year.
"I think it's going to start at the consumer level, and I think that we'll see the first signs of this after the student loan forgiveness program ends in the coming months. So, I think that it's going to be consumer-led," Rosenberg said, speaking about a prospective recession.
Meanwhile, Rosenberg said the full impact of the Fed's rate hikes over the past year is yet to kick in, stressing that it's historically taken six months for a recession to hit the economy after interest rates rise by 500 basis points.
"So, I think that by the third of fourth quarter, we're going to start to see more evidence but it's going to come out of the consumer side, not the corporate side," Rosenberg said, adding that the downturn will be "more severe than people think into 2024."
The veteran economist has long been bearish about the US economy and stock market, despite promising data showing healthy jobs numbers, growing GDP, and a sizzling tech-fueled rally. It's a view he's faced backlash over, with Rosenberg revealing he's been mocked and threatened because of his gloomy forecasts.