Topline
JPMorgan became the latest major financial institution to predict a recession in the U.S. in 2023—albeit a “mild” one—joining banking giants like Bank of America making similar projections even as inflation in the country has begun to show signs of slowing down.
People pass a sign for JPMorgan Chase & Co. at it’s headquarters in Manhattan.
Key Facts
Economists at JPMorgan expect the U.S. economy to contract by 0.5% in the fourth quarter of 2023, with the slowdown dragging further into 2024, Reuters reported.
The recession forecast is based on the prediction that the Federal Reserve will continue to raise interest rates by a further 100 basis points through March 2023.
Earlier this week, a survey of fund managers conducted by Bank of America found that 77% believe a global recession was imminent.
The survey also found that most fund managers believe the U.S. will escape the worst effects of a global recession which they predict will have a bigger impact on the Euro zone and the United Kingdom.
A report by Morgan Stanley was slightly more optimistic, predicting that the U.S. economy “just skirts” a recession in 2023 while the job market will continue to see a major downturn.
Earlier this month, fund manager BlackRock was far less optimistic, warning that it expects a “looming recession” as the Federal Reserve will continue to raise rates until “after the economic damage of rate rises is clear.”
Key Background
Last month, JPMorgan CEO Jamie Dimon warned that both the U.S. and global economy will slip into a recession in 2023, due to a combination of factors like the ongoing war in Ukraine and rate hikes by central banks. Dimon, however, was slightly more optimistic about the state of the U.S. economy noting that it was “actually still doing well” and might come out of it better than it did in 2008. Earlier this month, the Federal Reserve raised interest rates by another 75 basis points to a target range of 3.75% to 4%—the highest it has been since 2008. The hike was enacted after inflation numbers released last month remained stubbornly high at 8.2%. While announcing the rate hike, Federal Reserve Chair Jerome Powell signaled the central bank would begin to ease on the rate hikes soon. Inflation data released later in the month showed consumer prices rising at 7.7%—the slowest pace since January—a potential sign that the worst may finally be over.
Big Number
1%. That is what JP Morgan economists predict U.S. GDP growth will be in 2023, which is nearly half of what has been forecast for this year.
Crucial Quote
In an interview with Bloomberg earlier this week, Fed Vice Chair Lael Brainard also signaled a slowdown in rate hikes next month: “It will probably be appropriate soon to move to a slower pace of increases… We’ve done a lot, but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time.”
Further Reading
Recession Fears Hit New High Even As Inflation Slows—Here’s What Fund Managers Predict For 2023 (Forbes)
One Recession Indicator Isn’t Flashing Warning Signs Yet—Here’s Why That May Change (Forbes)
Fed Chair Jerome Powell—Haunted By The Ghost Of Paul Volcker—Could Tank The Economy (Forbes)
Source: https://www.forbes.com/sites/siladityaray/2022/11/17/jpmorgan-forecasts-mild-recession-in-2023–heres-what-major-financial-institutions-predicted-this-week/