Texan hedge fund manager J. Kyle Bass, the founder of Hayman Capital, sees a recession happening in 2020 unless the U.S. puts together a big infrastructure plan.
“[When] you think about the net effect of the tax plan, we think about it in the net rate of change of stimulus,” Bass told Yahoo Finance in an exclusive interview. “So, in 2018, the net stimulative effect of the tax cuts was roughly $250 billion stimulus to the U.S. Next year, it will be roughly $400 billion. And then, in 2020, it will be $150 billion. So, if you think about the rate of change from this year to next, it will be plus $150 [billion], from 2019 to 2020, it will be minus $250 [billion].
“My opinion is unless Trump gets a, call it trillion-dollar infrastructure plan put into place, it’s almost inevitable that we have a recession in 2020.”
Bass gained notoriety for correctly betting against subprime assets ahead of the financial crisis.
Regarding monetary policy, Bass said that the Federal Reserve is doing a “darn good job of trying to thread this needle.” He added that they’re trying to raise rates to a level where they can meaningfully cut them when the next recession hits.
“When rates are 2.5%, you can’t cut them 500 basis points. I think the Fed is concerned about two things — stimulating at full employment [and] growing the fiscal deficit at full employment,” Bass said. “When you do those things, you always get inflation.
“On the other side of things, I think they’re trying to normalize rates, so they have a few arrows in the quiver for if and when we stumble. Again, if we don’t add stimulus between 2019 and 2020, it looks to us like a recession is imminent.”
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.