Contrary to many people's views, investment research firm BCA Research believes that the US economy is on the brink of recession and expects the Federal Reserve's upcoming interest rate cuts to be insufficient to guide the market out of the recession.

Garry Evans, Chief Global Asset Allocation Strategist at BCA Research, said, "We all now believe that the US economy is in recession, which is exactly the opposite of the market's perception

He pointed out signs of economic slowdown, including what he called the "deteriorating" US labor market. The US Department of Labor reported that the unemployment rate rose slightly to 4.3% in July, the highest level since October 2021, and the US manufacturing activity index fell to an 8-month low in the same month.

The strategist said, 'Some things are rapidly disintegrating now.'.

According to data from the Chicago Mercantile Exchange (CME) Fed Watch Tool, the federal funds futures market shows that investors expect the Fed to cut interest rates at least three times by the end of this year.

But according to Evans, this will not have a significant impact on his predictions.

He said, "Several interest rate cuts cannot prevent an economic recession. The average duration of a recession is 10 months... It takes about a year for the Federal Reserve to actually start boosting the economy by cutting interest rates. The market believes that the federal funds rate will be 3% by the end of next year. Currently, it is 5.3%. Unless there is an economic recession, this situation will not happen

Traders are also closely monitoring the annual economic policy seminar held in Jackson Hole this week, which may make the outlook for interest rates clearer. Federal Reserve Chairman Powell will deliver a speech at the conference on Friday.

Even amidst persistent inflation and rising interest rates, the US economy remains strong. In the last century, the US economy experienced over ten recessions, some of which lasted for a year and a half.

Although the United States has not officially fallen into recession, a survey conducted by Affirm shows that about three fifths of Americans think they have fallen into recession.

Daily chart of the US dollar index