- GDP contraction in the first and second quarters of 2022 further fueled concerns about a recession.
- According to a tweet, Bank of America CEO warned U.S citizens of an upcoming recession.
Bank of America’s CEO, Brian Moynihan, had anticipated a mild recession in 2023. In an interview on 29th November, 2022, with news agency CNN, Moynihan expressed his hopes that the expected downturn will be short-lived. He cited the uncertainty of the global economy due to the potential US freight railroad strike, Russia’s war with Ukraine, and Covid shutdowns in China as contributing factors to the economic pullback.
The “Mild Recession” Explained by Brian
Brian also highlighted the resilience of American shoppers and how they have pushed out the worst-case fears for the economy. Despite this, Moynihan expressed his concern about the housing market and the difficulties young Americans face in buying their first homes due to the Federal Reserve’s aggressive interest rate hikes. He predicts that it could take two years of pain in the housing market before activity returns to normal.
During Bank of America’s quarterly earnings call, Brian expressed his view that the United States will only experience a slight recession, as consumers appear to be in good financial health. He believes that the amount of stimulus paid to individuals and the money they have remaining will prevent a more severe recession. While commercial customers are being more cautious, Moynihan does not foresee a significant slowdown on the consumer side.
Bank of America’s research team has consistently predicted a mild downturn due to the Federal Reserve’s aggressive rate hikes. Bank of America reported earnings and revenue for the first quarter that exceeded expectations, thanks to higher interest rates. Moynihan noted that the bank’s stress scenarios are typically less severe than those of other financial institutions due to the company’s preparation for problems, including the pandemic.
Bank of America is forecasting annualized GDP contraction of between 0.5% and 1% over the next three quarters before returning to positive growth. Moynihan expressed confidence in low unemployment rates and slow wage inflation, which would prevent the economy from falling into a deep recession. Despite Moynihan’s outlook, other Wall Street executives have warned of a more severe economic pullback.
During the quarterly earnings call, Brian commented on the current state of the US economy, which has been under pressure from macroeconomic factors such as inflation and a banking crisis. Moynihan acknowledged the fragility of the American citizen and addressed concerns about a potential recession, stating that it would likely be relatively mild.
Moynihan further noted that while consumer activity does not suggest a significant slowdown, commercial customers are exhibiting more caution. Bank of America’s research team has consistently predicted a mild downturn, in light of the Federal Reserve’s aggressive rate hikes, which have seen interest rates increase nine times, the fastest pace since 1980.
Moynihan also observed that unemployment remains at 3.5%, indicating full employment-plus, and wage growth is slowing, which he believes points to inflation gradually easing. Moynihan added that these factors translate into relatively good economic activity, resulting in a projected slight recession. Moynihan highlighted that the consumer has remained strong, being employed.
To determine whether a recession has occurred, the Business Cycle Dating Committee of the National Bureau of Economic Research considers various factors, such as non-farm payroll employment, personal consumption, wholesale and retail sales, industrial production, and personal income. While public perception of the economy can influence economic performance, economists prioritize underlying realities.