S&P Global expects the US to be in a classical recession next year

S&P Global Ratings’ Global Chief Economist Paul Gruenwald on Tuesday said that the US will be in a classical recession next year. He was talking to CNBC-TV18 about the Federal Open Market Committee (FOMC) meeting, which is underway, and the global economy.

“One of the things we are arguing right now, as we do our forecast round, is that it's not the same for the big three (US, Europe, China). The US has a classical recession; overheating, too much inflation and unemployment is too low to be sustainable. So we raise rates to slow things down.”

He further said, “If inflation is more stubborn than we think and if more action is needed to tighten financial conditions, then the Fed will have to go higher, but right now the baseline is the low fours.”

According to him, Europe has a huge geopolitical overhang and is not a classic recession. India, on the other hand, is one of the few growth stories.

He further said that India’s medium-term potential growth is higher than China's.

While talking about the Fed rate decision, Gruenwald said, “75 bps is the baseline. The new 25 is 75. Central banks are behind the curve, especially in the advanced markets, US inflation is still printing quite strong. We are way above the 2 percent target. So the Fed is barely neutral. We think they have got more work to do perhaps a terminal rate of greater than 4 percent. So 75 percent looks like a good bet for this week.”