Topline
Bank of America on Wednesday became the latest financial institution to predict an oncoming recession in the U.S. economy sometime later this year—joining the likes of Deutsche Bank, Goldman Sachs and Nomura—a forecast that comes on the same day when the Labor Department released data showing inflation in the U.S. hitting another 40-year-high.
Bank of America predicts a mild recession in the U.S. later this year.
Key Facts
In a statement, Bank of America said it now forecasts a “mild recession” later this year with the country’s GDP the fourth quarter shrinking by 1.4%.
Last month, economists from Japanese investment bank Nomura warned that a “mild recession” sometime around the end of 2022 was now more “likely” due to the Fed’s decision to sharply hike rates and projected that the U.S. economy is likely to contract by 1% next year.
Deutsche Bank—the first bank to project an upcoming recession in late 2023—updated its forecast last month noting that it now expects an “earlier and somewhat more severe recession,” projecting a 3.1% contraction of the GDP in the third quarter of 2023.
Last month, Morgan Stanley CEO James Gorman appeared to be slightly more optimistic, placing the odds of a downturn at “50-50” adding that a “deep or long recession” was unlikely.
In a recent note, the chief economist at Moody’s Analytics warned the risks of a recession were “uncomfortably high” and “rising,” and said avoiding such a situation would require “very deft policymaking from the Fed and a bit of luck.”
Last month, Goldman Sachs economists projected a 30% chance of a recession in the coming 12 months, up from a prediction of 15% made in April.
Contra
Despite projections by economists, President Joe Biden in an interview last month insisted that a recession was not “inevitable” adding that the U.S. is in a “stronger position” than any other country to fight inflation. Biden added that the American people should not “believe a warning” and urged them to instead wait and see whose prediction is correct. Several Biden administration officials have also backed this stance.
Key Background
Last month, the Federal Reserve raised interest rates by 75 basis points to a target range of 1.5% to 1.75%. This was steepest rate hike enacted by the regulator in 28 years as it looked to battle surging inflation. The Fed’s steep rate hike came after the Labor Department released data showing annual inflation in the U.S. surged to 8.6% in May. That number rose to 9.1% in June—the steepest 12-month increase in consumer prices the country has witnessed in over 40 years—according to data released by the Labor Department on Wednesday. Goldman Sachs previously warned its clients that it expects another 75 basis point hike in July.
Further Reading
Major Bank Is First To Forecast A Recession—More Could 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)
Source: https://www.forbes.com/sites/siladityaray/2022/07/13/bank-of-america-becomes-latest-financial-institution-to-forecast–recession/