The US will most likely head into a slight recession early next year, according to Bank of America Chairman and CEO Brian Moynihan.
In a new FOX Business interview, Moynihan says that the Federal Reserve’s late start to fighting inflation and subsequent aggressive interest rate hikes will probably cause a recession by Q1 of next year.
Once a recession is acknowledged, the CEO says the Fed may finally cut rates by the middle of 2024.
“The Fed has to win the battle on inflation. They started late on their own admission, and then now they’ve been willing to add to it, and it will take holding rates here and that’s what clear. So our base prediction is they will cause a slight recession in the first part of next year, and then the first rate cut will come in the middle of next year.
But the interesting thing is that the recession prediction keeps moving out, which means the power of the consumer, the power of the American economy, good businesses doing good things, people out spending… that’s keeping the economy going. We might get very lucky in that we get a very soft landing.”
Moynihan’s statement comes following the Fed’s latest 25 basis point rate hike last week, putting the Fed Funds rate at 5.33%, the highest since 2001.
The BofA Chair says that the US central bank’s reaction to the pandemic in 2020 may have been overkill, and is now forcing the Fed into dramatic rate hikes to reverse the consequences.
“Consumer spending is slowing down and is more in line with a lower growth, lower inflation economy. That’s why we’re seeing the indicia of inflation starting to tip over, and effectively the Fed’s rate structure [of] taking out monetary accommodation will be tougher this time because the amount of fiscal accommodation that went in to offset the pandemic far exceeded the pandemic damage honestly.”
Moynihan’s outlook lines up with several other influential voices who have forecasted a US recession early next year. In a new interview with CNBC, Societe Generale economist Kokou Agbo-Bloua predicted a significant slowdown in the US economy in Q1 of next year.
“The number one ‘original sin,’ so to speak, is that governments have spent a huge amount of money to maintain the economy that was put in hibernation to save human lives, so we’re talking roughly 10-15% of GDP…
The second point — obviously you had the war in Ukraine, you had the supply chain disruptions.
But then you also had this massive buildup in excess savings plus ‘greedflation,’ so companies’ ability to raise prices by more than is warranted, and this is why we see profit margins at record levels over the past 10 years.”
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