by John Hugh DeMastri
Of the 23 major financial institutions that work directly with the Federal Reserve, 16 anticipate a recession within the next 12 months, with two anticipating one the year after, according to a survey published by The Wall Street Journal Monday.
These institutions, which range from Bank of America to UBS, note that Americans are spending their savings, banks are heightening lending standards and the housing market is in a decline, all classic warning signs that a recession is impending, the WSJ reported. All of this is being exacerbated, the banks say, by the Fed’s historically aggressive pace of interest rate hikes, designed to blunt stubbornly persistent inflation.
The Fed hiked interest rates after several administration officials infamously described spiking inflation at the end of 2021 as “transitory,” shattering expectations of a relatively uneventful economic year in 2022, the WSJ reported. Economists polled by the WSJ expect that the unemployment rate — which has remained low at 3.7% despite high rates — will jump past 5% in 2023, potentially costing millions of jobs.
Securities Analysis 101
As the “risk-free” real rate of return from Treasury Bills approaches the much riskier rate of return from stocks, the value of stocks drop.
For example, if T-bills and stocks both had a 10% rate of return, everyone would just buy the former.
— Elon Musk (@elonmusk) December 17, 2022
If the Fed cuts rates in the latter half of the year, the economy will be able to rebound and 2023 will see a “shallow” or “mild” recession, the respondents predicted, according to the WSJ.
Another key factor behind a possible recession is the $2.3 trillion Americans accumulated during a pandemic savings-spree — driven primarily by government stimulus packages and reduced economic activity — which has since fallen to just $1.2 trillion, and is likely to continue falling as consumers lean on their savings to drive spending, the WSJ reported. Once these savings run out, consumer spending is likely to decline “sharply,” senior U.S. economist at Deutsche Bank Brett Ryan told the WSJ.
Only five of the surveyed groups anticipated that there would be no recession either this year or the next: Credit Suisse, JPMorgan Chase, Morgan Stanley, Goldman Sachs and HSBC Holdings, the WSJ reported.
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John Hugh DeMastri is a reporter at Daily Caller News Foundation.
Photo “Bank of America” by Billy Hathorn. CC BY-SA 3.0.
