More than two-thirds of economists from 23 major financial institutions expect a recession in the US this year
The big banks are predicting that an economic recession is fast approaching.
More than two-thirds of economists at 23 large financial institutions that do business directly with the Federal Reserve are betting that the US will enter a recession in 2023. Two others are predicting a recession in 2024.
The firms, known as primary dealers, are a collection of trading firms and investment banks that include such companies as Barclays Plc, Bank of America Corp, TD Securities and UBS Group AG. They cite several red flags: Americans are spending their pandemic savings. The housing market is declining, and banks are tightening their lending standards.
"We expect a decline in global GDP growth in 2023," economists at BNP Paribas SA wrote in the bank's 2023 outlook.
The main culprit is the Federal Reserve, economists said, which has been trying for months to slow the economy and curb inflation. Although inflation has eased recently, it is still well above the Fed's desired target.
The Fed raised rates seven times in 2022, moving its benchmark from a range of 0% to 0.25% to the current 4.25% to 4.50%, a 15-year high. Officials indicated in December that they plan to raise rates to between 5% and 5.5% in 2023.
Most economists polled by The Wall Street Journal expect the higher rate to lift the unemployment level from November's 3.7% to above 5% -- which is low by historical standards, but could result in millions of Americans losing their jobs.
Most also expect the US economy to contract in 2023.
Although the economy has been doing relatively well during the 2022 rate hike -- for example, unemployment claims remain low -- economists said the cooling effects of higher interest rates will filter through more clearly in 2023. US interest rates are still well below historic levels but are the highest since 2008, ahead of the global financial crisis.
Of course, Wall Street and nearly everyone in Washington got 2022 wrong—from the Fed's insistence that inflation would be transitory to top Wall Street analysts who projected a normal year of growth for stock and bond prices. The extent to which investors, analysts and economists were getting it wrong has made them look at the coming year with a sense of unease.
Still, economists and asset managers point to several indicators that traditionally signal a recession: banks have tightened lending standards, and demand has weakened to levels typically associated with recessions. Has been. The Conference Board's compendium of leading economic indicators has fallen for nine consecutive months, reaching historically pre-recession levels. And gauges that track overall business activity and the services and manufacturing sectors fell to their lowest levels since the Covid-induced 2020 recession.
In addition, US government bonds maturing between three months and two years offer higher returns than bonds maturing in 10, 20 or 30 years. This so-called inverted yield curve is a warning sign that has preceded every US recession since World War II.
The excess savings that Americans had at the height of the pandemic has shrunk from about $2.3 trillion to $1.2 trillion, according to Fed data. Deutsche Bank analysts expect it to be fully liquidated by October.
"Consumer demand is slowing and we think it will slow sharply as excess savings begin to drain out and consumers are under more stress," said Brett Ryan, senior US economist at Deutsche Bank. Ryan said.
To be sure, most economists who expect the US economy to contract predict that it will be a "shallow" or "mild" recession. They expect the economy and US equity markets to rebound in late 2023, thanks largely to rate cuts by the Fed. They largely expect bonds to deliver strong returns in 2023, while stocks end the year up slightly.
Most outlooks predict the Fed will raise interest rates in the first quarter, pause in the second quarter, and start cutting rates in the third or fourth quarter.
They expect the Fed's pivot to bring increased volatility to the stock market but moderate returns overall. The average outlook targets the S&P 500 at about 5% upside from its current level at the end of 2023. Some are calling for the S&P to fall from its current levels by the end of 2023, including Barclays and Societe Generale SA.
"Equities look very prosperous," said Steven Abraham, senior managing director at Amherst Pierpont. "Allocating from equities to bonds is an easy call."
No comments:
Post a Comment