The CEO of Wells Fargo, Charlie Scharf said on May 17 that there was “no question” that the United States is heading for an economic downturn, in an interview at The Wall Street Journal’s Future of Everything Festival.
“It’s going to be hard to avoid some kind of recession,” said Scharf, who happened to be in attendance when Fed Chairman Jerome Powell was present. “We live in this strange world where there’s still this extraordinarily underlying strength in terms of what we see, but you know that it’s going to deteriorate,” said Scharf.
The U.S. economy shrank by 1.4 percent in the first quarter, the worst data since the pandemic hit in spring 2020
The recent actions by the central bank have raised the specter of a potential recession, which some investors fear could happen if interest rates are pushed up too quickly.
“You’ve got the Feds saying that the economy is running too hot, that we need to slow economic growth,” said Scharf.
“You see the markets reacting to that and so that volatility is going to continue and, you know, the rates are going to rise—it’s going to change the dynamic of the health of the consumer and the business over time.”
The Federal Reserve rates latest hike in interest rates was on May 4, a move which former Fed Chairman Ben Bernanke said in hindsight, was too late.
Rates have been raised twice so far this year by a total of 75 basis points, with five more hikes planned in 2022 to cool down the economy and curb soaring inflation.
The rate hikes have already pushed up the borrowing costs for mortgages, credit cards, and other loans for Americans across the board.
However, Scharf noted that consumers and businesses are still doing financially well, as the economy continues to grow post-pandemic, while supply issues ease, thus cushioning it during a future recession.
“The fact that everyone is so strong going into this should hopefully provide a cushion such that whatever recession there is, if there is one, is short and not all that deep,” he said.
“What we hope is that the strength that we see in consumers and businesses is enough to weather the downturn.”
Fears that the Fed’s tightening policy will hamper economic growth have pushed down the stocks of major banks, such as Wells Fargo.
Shares of Wells Fargo are down 10 percent since the beginning of the year.
Meanwhile, Warren Buffett’s Berkshire Hathaway, disclosed on May 16, that it sold its remaining stake in Wells Fargo during the first quarter, according to its latest filing of holdings with the Securities and Exchange Commission, but shares of the bank rallied with other bank stocks the following day.
Many Berkshire investors had been pressuring Buffett to sell all of his group’s holdings in Wells Fargo since 2019, after a series of scandals, which have damaged the bank’s image with investors.