The economy may be hitting a crucial turning point.
Investor Peter Boockvar warns the Federal Reserve will not be able to meaningfully contain surging inflation, and there’s not much more consumers can withstand.
“It gets to the question: At what point does the consumer blink in the face of these rising prices,” the Bleakley Advisory Group CIO told CNBC’s “Fast Money” on Wednesday. “On the low-end consumer, they’re already beginning to blink.”
A TransUnion study out this week reflects trouble among consumers with the “riskiest credit profiles” in the form of rising trend credit balances and delinquency rates.
Boockvar believes the report is a harbinger of what’s ahead. In a note out this week, he warned consumers are at a “fork in the road.”
“The consumer is going to call a timeout on spending because of the continued rise in prices,” he wrote. “It is inevitable as price matters to the U.S. consumer who loves discounts.”
Boockvar, a Fed critic, believes all income levels are at a breaking point. He warns they’re on the cusp of delaying purchases until prices cool — which would have painful consequences on the broader economy. It would put Fed Chair Jerome Powell’s view that it’s possible to avert a recession at risk.
“This is going to be the most aggressive tightening cycle in 40-plus years between the rate hikes and the shrinking of the balance sheet,” noted Boockvar, a CNBC contributor. “Considering how dependent economic activity is to cheap money, how dependent markets have been to cheap money, I don’t see how it’s possible to achieve a soft landing.”
Yet, Wall Street appeared to embraced the Fed’s half point rate hike and Powell news conference. The S&P 500 saw its best day since May 2020.
Boockvar expects the bounce to evaporate.
“If there are low odds of a soft landing, which means we’re going to have a recession, well that means that earnings numbers are going to have to come down,” Boockvar said.