Top Strategist Predicts Unemployment Doubling By Year-End, Inevitable Economic Hard Landing: ‘Oh My Goodness, Be Careful Now’

As the United States braces for a potential economic downturn, one strategist forecasts a significant spike in unemployment rates by the close of the year.

What Happened: Mizuho strategist Dominic Konstam voiced his concerns about an impending ‘hard landing’ for the U.S. economy during an interview with Bloomberg TV. He postulates a potential rise in unemployment rates to 6% or 7% by year’s end, a sizeable increase from the current low of 3.7%, reported Business Insider on Tuesday.

“The hard landing will be a sharp increase in unemployment.”

Konstam highlights growing concerns over the labor market in the ongoing economic slowdown discourse, citing increasing layoffs and stalling hirings. Despite these indicators, investors’ focus remains on falling inflation rates— a strategy Konstam deems misguided.

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According to Konstam, the decelerating inflation is an early sign of a declining labor market. This reduction in price increases impacts company earnings and profits, leading to job cuts.

“The inflation decline is not a benign indicator of, ‘oh, we’ve done it, we’ve got a soft landing,’” he said. “On the contrary, the inflation decline is like, ‘oh my goodness, be careful now, what’s going to happen to the labor market six months down the road.’”

Konstam also envisions the Federal Reserve cutting nominal interest rates this year but emphasizes the need for a reduction in real rates due to dwindling company profits.

Why It Matters: In December, former Treasury Secretary Larry Summers highlighted inflation as a significant risk, contrary to Konstam’s dismissive view. Summers had noted that inflation rates were closer to the ‘Team Transitory’ prediction, led by Nobel laureate Paul Krugman, which posited that the inflationary pressure post-COVID-19 would be short-lived due to supply chain disruptions.

In January, Christophe Barraud, chief economist at Market Securities, expressed surprise at the resilience of the U.S. economy. Despite the pandemic, supply chain disruptions, and fluctuating monetary policies, Barraud had not foreseen a recession at the beginning of 2023.

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