Bank of America Raises Odds of Recession to 40 Percent

Bank of America Raises Odds of Recession to 40 Percent
A Bank of America logo in the Manhattan borough of New York, on Jan. 30, 2019. (Carlo Allegri/Reuters)
Tom Ozimek
6/21/2022
Updated:
6/21/2022
0:00

Bank of America has changed its forecast for the likelihood of a U.S. economic downturn, predicting a 40 percent chance that America’s economy will tip into recession in 2023, joining the growing chorus of analysts warning a slowdown may be around the corner.

Analysts at BofA led by economist Ethan Harris wrote in a note on Friday that they expect the U.S. economic growth to slow to a trickle by the second half of next year, blaming the impact of tighter financial conditions as the Fed reverses its long run of easy money policies.

“Our worst fears around the Fed have been confirmed: They fell way behind the curve and are now playing a dangerous game of catch up,” Bank of America analysts wrote.

The Federal Reserve hiked rates by 75 basis points at its most recent monetary policy meeting, with more hikes—as well as balance sheet reduction—in the pipeline.

“We look for GDP growth to slow to almost zero, inflation to settle at around 3 [percent] and the Fed to hike rates above 4 [percent],” the analysts wrote, referring to their prediction for how high the benchmark Federal Funds rate will end up at the end of the current tightening cycle.

While BofA analysts raised the odds of a recession to 40 percent at some point in 2023, they believe the chances of a recession this year are low, given the lagged impact of higher interest rates.

They also expect only a “modest” economic rebound in 2024.

The analysts’ gloomier forecast adds to the growing number of economists and others who believe a U.S. recession is just around the corner.

‘More Severe Recession’

Deutsche Bank recently said in a note that a “more severe recession” is likely to occur in the near future and earlier than it had previously forecast.
“More than two months ago, we forecasted that the U.S. economy would tip into a recession by end-2023,” Deutsche Bank Chief U.S. economist Matt Luzzetti wrote in a note to clients on Friday.

“Since that time, the Fed has undertaken a more aggressive hiking path, financial conditions have tightened sharply and economic data are beginning to show clear signs of slowing. In response to these developments, we now expect an earlier and somewhat more severe recession.”

Analysts at investment bank Goldman Sachs, too, have raised their expectations for the chances of a U.S. recession. They’ve upped their prior forecast of a 15 percent probability of a recession next year to 30 percent, according to a note Monday.

“We now see recession risk as higher and more front-loaded,” Goldman Sachs economists led by Jan Hatzius wrote. “The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.”

And economists at Nomura Holdings recently said they expect the U.S. economy will tip into a mild recession by the end of 2022, citing factors like souring consumer sentiment and persistently high inflation, especially in terms of food and energy.

“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,” Nomura economists wrote in a note Monday.

Tesla CEO Elon Musk said in an interview with Bloomberg News at the Qatar Economic Forum in Doha on Tuesday that he believes a recession in the near term “is more likely than not.”

“It is not a certainty, but it appears more likely than not,” Musk said.

Members of the Biden administration, meanwhile, have maintained that a U.S. recession is not inevitable.

President Joe Biden doubled down on that view in remarks to reporters Monday after taking a walk along the beach near his vacation home in Delaware.

“There’s nothing inevitable about a recession,” Biden said.

Tom Ozimek is a senior reporter for The Epoch Times. He has a broad background in journalism, deposit insurance, marketing and communications, and adult education.
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