More than a dozen financial institutions predict a U.S. economic recession this year Economists: The main culprit is the Fed’s aggressive interest rate hikes
Overseas Network, January 3 According to the “Wall Street Journal” report on the 3rd, more than two-thirds of the 23 large financial institutions that deal directly with the Federal Reserve predict that the United States will experience a recession in 2023. Economists at two other banks forecast a U.S. recession in 2024.
These financial institutions are primary dealers, including brokerages and investment banks such as Barclays, Bank of America, TD Securities and UBS. Economists at these financial institutions list some warning signs: Americans are spending their pandemic savings. Meanwhile, the U.S. housing market is in decline and banks are tightening lending standards.
Economists say the main culprit for the recession is the Federal Reserve. The Fed will raise interest rates seven times in 2022, pushing the benchmark interest rate to the current range of 4.25%-4.50%, the highest level in 15 years. Fed officials signaled in December 2022 that they planned to continue raising interest rates to a range of 5% to 5.5% in 2023. While U.S. inflation has eased recently, it remains well above the Fed’s expected target. Economists say the cooling effect of rising interest rates will become more pronounced in 2023. U.S. interest rates remain well below historical levels but are already at their highest level since 2008, before the global financial crisis.
Economists and money managers point to indicators that have traditionally signaled a recession: U.S. banks have tightened lending standards and demand has weakened to levels that typically signal a recession. U.S. economic indicators compiled by the Conference Board have fallen for nine straight months, reaching levels not seen before recessions in history. Indicators tracking overall U.S. business activity, as well as services and manufacturing, have fallen to their lowest levels since the 2020 recession triggered by the coronavirus pandemic.
In addition, the report said that the 3-month to 2-year U.S. Treasury yields are higher than the 10-year, 20-year or 30-year U.S. Treasury yields. This inversion of the yield curve has been a warning sign that has preceded every U.S. recession since World War II.