Those who still believe in a soft landing for the economy are deluding themselves, warns the president and CEO of the Caisse de depot et placement du Québec (CDPQ).
“Currently, the market and investors do not want to see, but to believe. That’s to say [qu’ils font] disregarding the fundamental economic data that heralds a slowdown in corporate profits,” lamented Charles Emond in an interview with Duty last week.
The strength of equity markets since the beginning of the year, particularly in growth sectors, is a good illustration, he says, of the fact that investors seem to have forgotten the lessons that history has taught us, particularly about the effects such a rapid and marked increase in central bank interest rates. “It’s hard to imagine, with such a rise in rates in record time – and when there has never been so much debt in the world – how we could get away with a landing in candy. »
In its economic forecasts last week, the US Federal Reserve also clearly indicated, but without saying so, that the United States would be in recession for at least part of this year.
As for the severe banking turbulence that is shaking the United States in particular, but also Europe, it is true that it is partly the result of “blind spots in the regulation of regional banks”. But not only, underlines the head of the CDPQ, of which 40% of the 400 billion assets as of December 31 were in the United States. They are also, once again, the consequences of the tightening of interest rates by the monetary authorities.
By raising the cost of credit, these rate hikes will initially gradually curb household consumption and business investment. But they also upset the economic and financial parameters on which the banks based themselves, forcing them to suddenly be much more cautious and conservative.
“All this happens quickly, but will not be felt immediately, explains Charles Emond. The effect of the first rate hikes is just beginning. […] It’s like those earthquakes that are followed by a tsunami. »
In the United States, financial authorities have urgently deployed safety nets under troubled banks to avoid a contagion effect. We can understand the reasons that led to these catastrophic changes to the rules that we had agreed to, says the head of the Caisse de dépôt, “but when we start doing this, even if we save the institution concerned, all the rest of the industry is asking questions and getting worried”. “What can dry up [un peu plus encore] sources of funding that banks could rely on,” he notes.