Major US banks are counting on a recession

Major US banks are counting on a recession

Monday, 2 January 2023 14:55

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BNP Paribas,

Major U.S. banks see a recession fast approaching the U.S. This is evident from The Wall Street Journal’s tour.

Two-thirds of economists at 23 major financial institutions that deal directly with the Federal Reserve predict the U.S. will enter a recession in 2023. Two economists predict a recession in 2024.

Barclays, Bank of America, DD Securities and UBS are some of the names of this group of banks.

Incidentally, most predict a mild recession.

Economists cite several red flags: Americans are draining their savings from the pandemic. The housing market is sluggish and banks are tightening their lending conditions.

“We expect global GDP growth to slow in 2023 due to a slowdown in both the US and the Eurozone,” economists at BNP Paribas wrote in their 2023 outlook.

The main scapegoat, the Federal Reserve, raised interest rates in seven steps last year from zero to 0.25 percent to 4.25 to 4.50 percent, according to economists. In December, the central bank indicated that interest rates would rise to a range of 5.0 to 5.5 percent this year.

Many economists predicted higher interest rates would push unemployment above 5 percent, up from 3.7 percent in November. That’s still a low unemployment rate, historically speaking, but it means millions of Americans will be out of work for some time to come.

Most economists expect the US economy to contract this year. They think the effects of higher interest rates cooling the economy will be more noticeable this year.

It should be noted that everyone on Wall Street got it wrong at the start of 2022: First, the Fed itself said inflation was temporary, but analysts predicted another year of rising stocks and bond prices.

Economists and asset managers traditionally point to indicators that predict recessions: tighter lending conditions at banks and the weaker credit demand that usually accompanies recessions.

The Conference Board’s leading indicators have fallen for nine consecutive months and are at levels that have signaled a recession in the past. Indices for activity in services and manufacturing are at their lowest levels since the recession caused by the coronavirus in 2020.

In addition, yields on U.S. government bonds with maturities of three months to two years are higher than those with maturities longer than 10, 20 or 30 years. Such an inverted yield curve is a warning sign that has preceded all US recessions since World War II.

During the pandemic, Americans hoarded between $2.3 trillion and $1.2 trillion, according to data from the Fed. Deutsche Bank thinks the pot of extra savings will run out in October. Analysts expect consumers to slam on the brakes once they notice that extra savings are running out. Deutsche Bank’s Brett Ryan predicts that firms will also invest less.

Many economists believe that the stock markets will rebound towards the end of 2023 as the central bank starts cutting interest rates again.

According to analysts, this will bring good returns in bond markets and marginal gains in equity markets in 2023.

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