The U.S. economy will slow this year and through 2024 but avoid recession, despite a cavalcade of threats that include soaring inflation, war in Europe and nagging supply chain disruptions, a team of prominent bank economists said.
The American Bankers Association’s Economic Advisory Committee, composed of 13 chief economists from some of North America’s largest banks, expects the
The Fed twice raised rates in the spring and signaled that several more increases are on the horizon this year. This comes after the country's rapid recovery from a pandemic-induced slump ignited a surge in inflation. The U.S. Labor Department said its consumer price index in April hit 8.5%, nearly
A methodical pace of rate increases could address inflation without
The committee forecasts 1.6% inflation-adjusted growth of gross domestic product this year and 1.5% in 2023, well below last year’s reported 5.5% growth.
“It’s an optimistic forecast, given the challenges ahead,” said Richard DeKaser, committee chair and chief corporate economist at Wells Fargo in San Francisco.
Still, according to the ABA committee, there is a 40% chance of recession next year. Rate hikes that come too fast or prove too high, stubbornly elevated inflation, little resolution to supply chain problems, or a sharp housing correction could tip the economy into a downturn. Long-term interest rates on mortgages have already surged significantly this year, DeKaser noted.
“The inflation story is a very tricky part of this," he said.
The cautiously optimistic outlook reflects commentary from some bank executives but contrasts with a darkening view among some on Wall Street.
A recession would curb loan demand and reduce banks’ interest income. Loan defaults likely would also rise, potentially driving up banks’ credit costs. The war in Ukraine adds further risk, given the potential for Russia’s aggression to spread further into Europe and
The $8.3 billion-asset ConnectOne is preparing for such challenges, Sorrentino said, though he stopped short of predicting a recession. He noted that the economy currently has plenty of momentum heading into the summer and the job market is strong.
Like the ABA experts, he anticipates at least a notably slower pace of economic growth but not necessarily a downturn.
“Everybody’s doing well, everybody’s got a job, everybody’s going out,” Sorrentino said in an interview. “But that’s not reality forever.”
The U.S. economy
But the gain last month marked the slowest pace of growth in 13 months, and wage advances eased from 5.5% in April to 5.2% in May.
Soaring food and fuel costs present the greatest immediate concern because they affect almost every American and industry, Sorrentino said. Such expenses “are rippling through the economy,” he said.
JPMorgan Chase Chairman and CEO Jamie Dimon shared a more pessimistic view. A
"Right now, it's kind of sunny, things are doing fine. Everyone thinks the Fed can handle this," Dimon said, according to a transcript. But a “hurricane is right out there down the road coming our way."
"We just don't know if it's a minor one or Superstorm Sandy. You better brace yourself," he said, adding JPMorgan is preparing for “bad outcomes.”
Goldman Sachs Group President John Waldron, speaking at the same conference, echoed that sentiment. He is braced for a flurry of punches to the economy tied to inflation.
“The confluence of the number of shocks to the system, to me, is unprecedented,” he said. “We expect there’s going to be tougher economic times ahead."
Regarding interest rates, the ABA committee said that following a quarter-point hike in March and a half-point increase in May, it expects another 150 basis points of increases this year followed by 50 basis points early next year.
The committee expects higher interest rates will help stem excessive inflation. It forecast price inflation would recede steadily from above 8% in the first quarter to 6.3% in the fourth quarter, then 2.4% by late next year.
“It looks like the Federal Reserve will successfully bring inflation down to more tolerable levels in the foreseeable future,” DeKaser said.
Yet, he added, “there are substantial risks to this outlook.”
