The world’s largest economy faces a very high risk of entering a recession in 2023. Which would have a ripple effect on other economies. Even if inflation inside the U.S. showed indications of moderating in October.
The top U.S. investment bank CEOs, speaking virtually in unison, expressed a more dismal outlook than that of the most recent predictions made by the International Monetary Fund a few weeks ago when they issued the warning.
Jamie Dimon, CEO of JPMorgan, expressed concern about the impact of inflation on individuals and businesses. Who still possess $1.5 trillion in more savings but will spend 10% more than that in 2021 as a result of pandemic programmes.
Dimon stated that “what I just said is being undermined by inflation and that a trillion a half dollars would run out sometime in the middle of next year.”
Therefore, such factors “may very well derail the economy and trigger this mild even hard recession that people are afraid about” when looking forward.
It wasn’t the first time the top U.S. investment bank issue a warning to clients about an impending “economic cyclone.”
Related News: The “significant majority” of Fed policymakers anticipate a “short-term delay” in rate hikes
We don’t know if the hurricane. Which is currently approaching, is Superstorm Sandy or a minor storm, according to Dimon’s statement from last June.
According to JPM’s CEO, boosting interest rates “may not be adequate to manage inflation” with Fed Funds going toward 5%.
What will happen to the US economy in 2023?
A recession in the U.S. economy is “approximately 2-out-of-three” likely. According to David Solomon, CEO of Goldman Sachs , who expressed his concerns at a Wall Street Journal-organized event. Other prominent figures in global finance apparently have similar worries.
The GS predicts that stock, crude oil. And real estate (commercial and residential) will all continue to display a downward trend, which will be offset by the U.S. dollar’s gain.
It is also not surprising like we’re in a period of rising interest rates. According to Solomon, as the Fed is attempting to control inflation brought on by significant fiscal stimulus and also the “black swan” consequences of the Russian war in Ukraine.
The chance of a “soft landing,” or a reduction in inflation that does not drive the economy into recession. For the U.S. economy is also only 35%, he noted.
In most tightening cycles historically, there has been a reversal after a certain amount of time, according to Solomon. “The market is assuming that we’ll reach the terminal rate fairly soon and [Fed] will bring rates back down.” He added. But I believe this is still in its early stages, thus I believe it is uncertain.
Looking at the forecasts, the New York Fed’s recession model calculates a 38% chance of a recession inside the U.S. in Nov 2023. (Readings above 30% are traditionally harbingers of an economic recession). While the Fed’s most recent dot plots indicate the terminal rate for 2023 as 4.6%.
A ceiling that is not shared by every FOMC members because the nowcast model from the Cleveland Fed. Which has been remarkably accurate this year. Predicts that the core rate would only slightly decline to 6.26%. It is questionable at the very least whether this is sufficient for the Fed to place the dot plot for 2023 a little above 5%.