- A recession is inevitable for the United States, and investors must play defense in this type of environment, said Katie Koch, CEO of TCW.
- Koch said interest rate hikes by the Fed aimed at slowing the economy and lowering inflation will begin to have an impact.
A recession is inevitable for the United States and investors must play defense in this type of environment, according to the head of TCW Group.
“We’re going to have a recession, because that’s the way the world works,” Katie Koch, CEO of the $210 billion company, said Thursday on CNBC’s “Delivering Alpha” conference. “We haven’t had a real one for over a decade and a half.”
While Wall Street has been bracing for a downturn for much of the past two years, the U.S. economy has remained afloat, largely due to resilient consumer money flows and a job market that has remained strong.
However, Koch said interest rate hikes by the Fed aimed at slowing the economy and lowering inflation will begin to have an impact. It has long been believed that higher rates lead to delayed effects, the timing of which is uncertain and depends on a variety of factors.
“I think it’s worth being patient and waiting to see higher interest rates work their way through the system,” Koch said. “We haven’t seen the pain from rising interest rates, but it’s coming.”
From an investment standpoint, Koch recommends a range of mostly conservative options that include cash. She also talked about agency debt, mortgage-backed securities and Treasuries, as well as companies with long-term capital.
But Koch is concerned about consumers as well as companies that have used a “roll and pretend strategy” to defer loan repayments.
“This is the bedrock of the U.S. economy, and obviously consumers and small and medium-sized businesses, I think, are going to have difficulties financing themselves in this environment, and that leads us to a relatively bearish outlook,” she said.
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