Jeremy Grantham warns the AI boom won't stop a recession – and stocks are still likely to crash

• The AI boom won't prevent a recession, according to Jeremy Grantham.
• "AI is very important. But I think it's perhaps too little, too late," he told Bloomberg.
• Stock prices will fall when that economic slump hits, the legendary investor added.

The rise of AI hasn't come soon enough to stop the US suffering a recession - and the economy could slump by December, according to legendary investor Jeremy Grantham.

Speaking to Bloomberg's David Rubenstein, the Grantham warned the Federal Reserve's most aggressive interest-rate hiking cycle in decades will crush growth and drag down stock prices.

"Personally, I think AI is very important," the GMO cofounder said. "But I think it's perhaps too little, too late to save us from a recession."

"The power of interest rates rising and depressing the real estate market, [a] very negative, slow-moving influence, I suspect that they will once again dominate. And we will have a recession running perhaps deep into next year and an accompanying decline in stock prices."

"It may start in 2023," Grantham added, in response to a question about when the recession is likely to begin.

Since January, the explosion of interest in ChatGPT and other similar technologies has boosted stock prices, with the benchmark S&P 500 up 17% and the tech-heavy Nasdaq Composite soaring 34% year-to-date.

2023 has also brought good news for the economy - with inflation cooling, unemployment holding steady at under 4%, and second-quarter growth coming in better-than-expected.

Grantham - who said earlier this year that the S&P 500 could nosedive 50% with a recession still certain - said that he's still worried about the longer-term impact of the Fed's rapid tightening campaign, which has seen the central bank lift borrowing costs from near-zero to over 5.5% in the space of just 18 months.

"In the end, life is simple - low rates push up asset prices, higher rates push asset prices down," he told Bloomberg. "We're now in an era that will average higher rates than we had for the last 10 years."

"The Fed's record on these things is wonderful - it's almost guaranteed to be wrong," Grantham added, referring to the central bank's own economists shelving their recession call last month. "They have never called a recession, and particularly not the ones following the great bubbles."