Bank of America CFO: Consumers are still spending, economic recession is highly unlikely
In the minutes released last month by the Federal Reserve, it was revealed that Fed officials no longer anticipate a recession this year. Following suit, the first major Wall Street bank, Bank of America, has revised its expectations and now predicts that it will be able to avoid a downturn.
Alastair Borthwick, Chief Financial Officer (CFO) of Bank of America, believes that the probability of an economic recession in the United States is becoming increasingly low, given the strong consumer spending environment.
Borthwick stated on Wednesday, the 20th, that it is difficult for the US to experience an economic recession when consumer spending grows by 4% YoY. The market consensus is that the occurrence of a small-scale recession will be delayed.
Borthwick pointed out that US consumers are still spending on goods and travel, with an increase in credit card and debit card payments. At the same time, consumer asset quality remains "very strong." Bank of America expects that an economic recession may occur at some point in the future, but the bank's economists have postponed their projected timing for the recession.
During the Federal Reserve meeting in July, the Fed staff no longer projected a mild recession for the US economy this year. The minutes of the July meeting, released last month, stated that indicators of spending and actual activity have been stronger than expected since mid-March when the US banking industry came under pressure. As a result, the staff revised their recession expectations.
Fed Chairman Powell also stated after the July meeting that the Fed's own economists no longer projected a recession. Following the Fed's lead, Bank of America became the first major Wall Street bank to officially change its economic forecast to no recession in the US economy in early August.
Bank of America's economists previously projected a mild recession in the US next year. However, one week after Powell's speech, they released a report in early August stating that they had reassessed their previous expectations and believed that a soft landing was the most likely outcome. They now expect the Fed to make its first interest rate cut in June next year, followed by a slower pace of rate cuts.
Following Bank of America, JPMorgan also officially predicted that the US would avoid a recession. They expect the US economy to continue growing this year, and the most likely scenario next year is "moderate growth below the long-term trend."
Earlier this month, Goldman Sachs lowered its probability of a US recession from the previously estimated 20% in July to 15%. One of the main reasons for Goldman Sachs' optimistic prediction of avoiding a recession is that consumers' real disposable income is expected to accelerate again next year.
However, there are also Wall Street insiders who predict that the US will still fall into a recession. Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International, stated that although the US economy may appear strong, it could still fall into a recession due to the impact of the Federal Reserve's continuous interest rate hikes, with a 60% probability of recession. Renowned economist and former Chief North American Analyst at Merrill Lynch, David Rosenberg, believes that the impact of the Federal Reserve's interest rate hike cycle has not yet fully manifested, and the US economy will enter a recession within six months unless a miracle happens.
Last week, JPMorgan CEO Jamie Dimon warned that a recession may be difficult to avoid, and he believes it would be a "huge mistake" to think that the US economy will continue to prosper for many years. Dimon expressed his greatest concerns, including central banks such as the Federal Reserve controlling liquidity through "quantitative tightening," geopolitical tensions, and governments around the world "spending money like drunken sailors."