Bank Of America Becomes Latest Financial Institution To Predict Recession

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Topline

Bank of America on Wednesday became the latest financial institution to predict a looming recession in the U.S. economy later this year, joining Deutsche Bank, Goldman Sachs and Nomura in a prediction that comes the same day the data was released by the labor department. showing US inflation hitting another 40-year high.

Highlights

In a statement, Bank of America said it now expects a “mild recession” later this year with the nation’s GDP falling 1.4% in the fourth quarter.

Last month, economists at Japanese investment bank Nomura warned that a “mild recession” towards the end of 2022 was now more “likely” due to the Fed’s decision to raise rates sharply and forecast that the US economy is expected to contract by 1% next year.

Deutsche Bank – the first bank to predict a coming recession at the end of 2023 – updated its forecast last month, noting that it now expects an “earlier and somewhat more severe recession”, forecasting a contraction of 3.1% of GDP in the third quarter of 2023.

Last month, Morgan Stanley CEO James Gorman sounded slightly more optimistic, putting the odds of a slowdown at “50-50”, adding that a “deep or long recession” was unlikely.

In a recent note, the chief economist at Moody’s Analytics warned that recession risks were “uncomfortably high” and “rising”, and said avoiding such a situation would require “very skilful policy on the part of the Fed and a bit of luck”.

Last month, economists at Goldman Sachs predicted a 30% chance of a recession over the next 12 months, down from a 15% forecast made in April.

Contra

Despite economists’ projections, President Joe Biden, in an interview last month, insisted that a recession was not “inevitable”, adding that the United States was in a “stronger position” than any other country to fight inflation. Biden added that the American people shouldn’t “believe a warning” and urged him to wait and see which prediction is correct. Several Biden administration officials have also supported this position.

Key Context

Last month, the Federal Reserve raised interest rates by 75 basis points to a target range of 1.5% to 1.75%. It is the biggest rate hike the regulator has taken in 28 years as it seeks to tackle soaring inflation. The Fed’s sharp rate hike came after the Labor Department released data showing that annual inflation in the United States jumped to 8.6% in May. That figure rose to 9.1% in June — the largest 12-month increase in consumer prices the country has seen in more than 40 years — according to data released Wednesday by the Labor Department. Goldman Sachs has previously warned clients that it expects another 75 basis point hike in July.

Further reading

Major bank first to predict recession – others may follow (Forbes)

Here’s what billionaires are saying about the next recession (Forbes)

Here’s why Biden administration officials think a recession can be avoided (Forbes)

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