Legendary Wall Street predictor makes bold claim about future of the American economy

A financial author and stock market analyst now says the Federal Reserve will be forced to initiate an emergency rate cut ahead of its next meeting in September to tamp down on the widespread selloff of equities in the last several days. 

Robert Prechter, the founder and president of Elliott Wave International, joined Neil Cavuto on Fox Business Monday evening and said the Fed missed a huge opportunity at its meeting last week to get ahead of the market calamity that continues to unfold.

'I think there's gonna be a surprise rate cut before the September meeting because I think rates have started falling faster,' he said. 

The last time the Fed made emergency rate cuts came back during the early days of COVID, and many experts believe one won't happen again now because it would signal that the US economy is in terrible shape, possibly leading to even more market scares. 

Back in January, Prechter warned that having too much optimism in the market was dangerous. He said Monday that this optimism is now 'entrenched' and that the world is seeing 'the most overgrown market ever.'

Following the Friday jobs report, which showed unemployment in July rose to the highest level since October 2021, markets worldwide went into a tailspin amid fears that the US economy is sputtering.

Monday's continued downfall was led by the benchmark Nikkei 225 index in Tokyo - the third largest in the world - which crashed by 12 percent this morning, the biggest single-day fall in almost four decades.

The S&P 500 dropped 3 percent for its worst day in nearly two years. The Dow Jones reeled by 1,033 points, or 2.6 percent, while the Nasdaq composite slid 3.4 percent.

All told, Bloomberg estimates that $6.4 trillion has been wiped from the value of global stock markets in the last three weeks.

Much of this could have been avoided if the Fed had decided to cut rates at last week's meeting, according to Prechter.

'The Federal Reserve had a wonderful opportunity last Wednesday to lower their Fed funds rate by a quarter point; they didn't take it,' he said. 'I think that was a big mistake.' 

Now, economists at Goldman Sachs have raised the likelihood of the US slipping into a recession within the next year from 15 percent to 25 percent, while analysts at JP Morgan put the chances at 50 percent.

The Fed had been raising rates since March 2022 in a bid to contain inflation, but one top economist believes the agency is suffering from tunnel vision. 

The chief economic advisor at Allianz, Mohamed El-Erian, blamed the Fed for the current state of the market, saying the hikes are hitting the economy hard.

'I really do worry that we may lose US economic exceptionalism because of a policy mistake,' he told Bloomberg TV.

Even if the Fed waits until September to cute rates, most industry watchers believe a rate cut is indeed coming.

JP Morgan analysts wrote in a memo that because 'the Fed looks to be materially behind the curve, we expect a 50 [basis point] cut at the September meeting, followed by another 50 [basis point] cut in November.'

Investors now also believe that other major central banks will follow the Fed's lead and ease rates more aggressively, with the European Central Bank believed to be cutting rates by 67 basis points by Christmas.