- Bank of America sees a 1 in 3 chance of a US recession next year, but sees the possibility of a “bumpy landing”.
- The bank’s economists said, if the US slips into recession, it will moderate by historical standards.
- They expect the Fed to raise interest rates by 30 basis points more than market pricing.
Bank of America warned that the United States faces a one in three chance of collapsing in the U.S Recession next year, but he said it will likely be moderate by historical standards.
The bank’s economists said the risks of a
Low for the year, and they’re expecting a “bumpy landing” instead of an outright recession like
Tighten financial conditions.
But they are becoming more concerned about the prospects for the US economy in 2023, as inflation shows signs of persisting and the labor market appears dangerously overheated.
The United States has economic inflation Operating at its highest level in 40 years, and Federal Reserve It plans a series of interest rate increases to combat it. But there are concerns that the central bank could push the economy into recession by raising interest rates excessively.
“Risks are low this year, as the economy has a lot of momentum and it will take time for the Fed’s increases to impact growth,” Bank of America economists said in a note on Friday.
“However, next year the Fed will face some tough choices. We see a one in three probability that the recession will start sometime next year.”
With the Fed raising rates to 3.4% by May next year, there will be a continuing slowdown in the economy, according to BofA. They see growth falling to 0.4% by the fourth quarter of 2023.
“We expect the Fed to rise about 30 basis points more than market priced, adding further pressure on financial markets,” the bank said.
“The spread from fiscal tightening to weaker growth is likely to be slightly longer than usual, causing gradual downward pressure on growth,” they added.
The US stock market recorded a series of weekly losses Investors worry About the risks Inflation accompanied by economic stagnation and stagnation. Morale has dropped to levels of “extreme fear,” according to CNN’s Fear and Greed Index business leaders From Tesla CEO Elon Musk to David Solomon, CEO of Goldman Sachs, the alarm has sounded about growth.
Market historian Jeremy Grantham predicted that Shares may drop by up to 80% from its peak in the next recession, though Marko Kolanovic, quantitative expert at JPMorgan, believes the market Pricing at great risk.
“If the economy descends into a recession, it is likely to be mild by historical standards,” Bank of America said. “The economy has relatively few imbalances, so the risk of unsightly feedback loops is lower than normal.”
He identified three reasons why the United States could avoid outright recession. The first is that the economy suffers from only one major flaw – an overheating labor market.
In April, the US unemployment rate was 3.6%, companies are struggling to hire staff, with the number of Americans actively looking for jobs remaining below pre-pandemic levels. Bank of America expects the rate to fall to 3.2% next year.
This labor shortage means employers must pay higher wages to hire employees – which is fueling inflation.
Given that, the Fed will have to push the unemployment rate again in 2023 and 2024, according to BofA. Their base condition requires a 1% rise to do the job, or 2% in a slump.
“Second, we don’t think the Fed should do all the work to raise the unemployment rate: it will help workers returning to the labor market,” they said.
The third reason is that they see the Fed as relatively pessimistic, and believe it will stop raising rates once unemployment starts rising and core inflation drops to 3%, instead of its 2% target.