US Economy to Start Losing 175,000 Jobs a Month Next Year: Bank of America

A Bank of America logo is pictured in Manhattan, New York City, on Jan. 30, 2019. (Carlo Allegri/Reuters)

Bank of America on Friday warned that the Federal Reserve’s policies aimed at tackling inflation could see the U.S. economy start losing tens of thousands of jobs a month beginning early next year.

While American employers slowed down hiring in September, the United States still added 263,000 jobs, down from an upwardly revised 537,000 in August, according to data from the Bureau of Labor Statistics (BLS). That figure was more than the 250,000 new jobs that economists had anticipated.

Those job gains will likely prompt the Federal Reserve to continue with its aggressive policy aimed at reducing demand and thus inflation.

In its note to clients, first reported by CNN on Monday, Bank of America said the pace of job growth is expected to be roughly cut in half during the fourth quarter of this year.

Overall, as pressure from the central bank's aggressive interest rate hikes builds, nonfarm payrolls will begin shrinking early next year, the bank said, and the economy could start losing 175,000 jobs a month throughout much of 2023.

The bank also believes a recession is on the cards, beginning in the first half of next year with the unemployment rate climbing to 5.5 percent, 1 percent higher than the Fed expects.

"We are looking for a recession to begin in the first half of next year," Michael Gapen, head of U.S. economics at Bank of America, told CNN. "The premise is a harder landing rather than a softer one."

'Very Challenging' Task for Powell

Fed Chair Jerome Powell has previously said that the bank remains adamant in its goal of achieving a "soft landing" while pursuing an inflation target of 2 percent.

However, in recent months, Powell has increasingly acknowledged the difficulty of achieving such an outcome. At a press conference in September shortly after the Federal Open Market Committee delivered another huge interest rate hike, Powell stated that achieving such a soft landing will be a "very challenging" task.

The Fed chair noted that bringing inflation down to the central bank’s target would likely require a "sustained period of below-trend growth" and that there would "very likely be some softening of labor market conditions."

Friday’s BLS data also showed that the unemployment rate fell to 3.5 percent, from 3.7 percent in August, in line with economists’ expectations.

However, the latest job market results are likely still too robust for the central bank, meaning they will have to do more to slow it down, decrease employer demand for workers, and bring inflation down too.

Joe Brusuelas, chief economist at RSM, a U.S.-based consulting firm, estimated last month that it would take 5.3 million lost jobs and an unemployment rate of 6.7 percent for the Fed to reach its 2 percent inflation rate, Reuters reported.

"They’ll accept some weakness in labor markets in order to bring inflation down," Gapen told CNN. "Although nobody wants to be callous about someone losing their job, this could be classified as a mild recession."