By Alice Seeley
On July 13, Bank of America became the latest bank to forecast a recession later this year as U.S. inflation hits another 40-year high. Bank of America joins Wells Fargo Investment Institute and Nomura Holdings Inc. in predicting a recession in 2022, while economists at Deutsche Bank AG believe one will start in mid-2023.
“A number of forces have coincided to slow economic momentum more rapidly than we previously expected,” Bank of America’s economist, Michael Gapen, wrote. “We now forecast a mild recession this year.”
Gapen predicted America’s gross domestic product will fall by 1.4% in the last quarter of the year and will increase by 1% next year.
“Our previous baseline outlook for the U.S. economy featured a growth recession (e.g., output growth remaining positive, but below our estimate of potential), but a number of forces have coincided to slow economic momentum more rapidly than we previously expected,” he explained.
Last month the American consumer price index reached 9.1%.
These conditions caused the Federal Reserve to be more aggressive with interest rate hikes.
“With much of the recent rise in inflation coming from food and energy prices, commodities that face relatively inelastic demand in the short run, households may have less available for discretionary purchases,” the Bank of America analysts stated.
“The Fed has communicated its desire to restore price stability and a willingness to accept at least some pain in labor markets in the process. We look for the Fed to raise the target range for the federal funds rate to 3.25-3.5% by year-end, including another 75bp hike at the upcoming July FOMC meeting,” the report continued.
Regardless of the forecasts, President Joe Biden insisted that a recession is not “inevitable” and that the U.S. is in good shape to fight inflation.
