More than a dozen financial institutions predict US economic downturn this year Economists: Fed’s aggressive interest rate hikes are main culprit
Overseas Network, January 3 According to the 3 “Wall Street Journal” report, more than two-thirds of the 23 large financial institutions that deal directly with the Federal Reserve expect the United States to experience a recession in 2023. Economists from two other banks predict a US recession in 2024.
These financial institutions are prime intermediaries, including brokers 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 US housing market is in decline and banks are tightening lending standards.
Economists say the main culprit behind the recession is the Federal Reserve. The Fed will raise interest rates seven times in 2022, pushing the key interest rate into 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. Although inflation in the US has recently declined, it remains well below above the Fed’s expected target. Economists say the cooling effect of interest rate hikes will become more pronounced in 2023. US interest rates remain well below historic levels, but are already at their lowest level. high since 2008, before the global financial crisis.
Economists and fund managers point to indicators that have traditionally signaled a recession: US banks have tightened lending standards and demand has weakened to levels that typically signal a recession. US economic indicators compiled by the Conference Board fell for nine consecutive months, reaching levels not seen before recessions in history. Indicators monitoring overall US trade activity, as well as services and manufacturing, fell to their lowest levels since the 2020 recession triggered by the coronavirus pandemic.
Furthermore, the report said that 3-month to 2-year US Treasury yields are higher than 10-, 20- or 30-year US Treasury yields. This yield curve inversion has been a warning sign that has preceded every US recession since World War II.
