Strategist David Roche says we’ll avoid a global recession, central banks will ‘change the goalposts’

The global economy will likely avoid a recession and central banks will need to “change the goalposts” on inflation, according to veteran strategist David Roche.

With high inflation proving sticky across many major economies, central banks have tightened monetary policy aggressively over the past 18 months. Further hikes to interest rates are expected later this year amid tight labor markets and resilient economic activity.

It’s led a growing number of economists to believe that the additional rate rises will tip several major economies into recession, with some even suggesting that a downturn could be necessary to achieve the levels of demand destruction and unemployment that would bring about disinflation.

The market is pricing a further 25 basis point hike from the U.S. Federal Reserve later this month, though a cooler-than-expected June consumer price inflation reading on Wednesday fueled optimism that prices are finally beginning to moderate.

Roche suggested that since figures are beginning to reflect year-on-year comparisons to the sudden spike in prices last spring following Russia’s invasion of Ukraine, the Fed will be hesitant to begin cutting rates back from their current elevated levels until “well into next year.”

“I think a real fear is the fact that they could cut too early and be the culprits of engendering higher inflation for a second time, so I think if anything, they will stay the course,” said Roche, a veteran investor and president of research house Independent Strategy.

“Will that produce deflation, will that produce recession? I actually don’t think so, and the reason for that is that labor markets and disposable income — what people have to spend — are behaving differently this time.”

The year-over-year inflation rate dropped from 4% in May to 3% in June, largely due to falling energy and transportation prices, while core inflation — which excludes…