U.S. Will Fall Into Recession This Year As ‘Worrisome’ Forces Grow, Bank Of America Warns

“Economic momentum has faded,” Bank of America economists led by Michael Gapen wrote in a Wednesday morning note, saying they now forecast a “mild recession” this year, with fourth-quarter gross domestic product falling 1.4% (compared to a 6.9% increase last year) followed by an increase of 1% in 2023.

The team said consumer spending in the services sector has been “perhaps most worrisome,” after data showing consumer spending fell in May for the first time this year, with retail giants including Walmart and Target reporting that wary Americans have shifted dollars away from leisure items, and toward necessities and cheaper goods.

The economists blamed “at least some of the decline” on the “inflation tax,” referring to the recent rise in consumer prices that’s pushed food and energy prices to the highest level in decades; they said morning data showing inflation spiked a worse-than-expected 9.1% last month is further proof the so-called tax will weigh on consumer spending and fuel a recession this year.

Though most banks—including Goldman Sachs and Morgan Stanley—continue to believe the U.S. is likely to avoid a recession this year, Bank of America’s economists join a growing wave of firms that are less optimistic as a result of the Federal Reserve’s efforts to combat inflation with interest rate hikes, which deter spending by making borrowing more expensive.

Earlier this month, Japan-based Nomura warned many of the world’s leading economies—including the U.S., U.K. and South Korea—will fall into a recession within the next 12 months as central banks become “very aggressive” in fighting inflation.