[Summary] "100% Probability of US Recession Within 1 Year"... BoA CEO Says "Consumer Spending Remains Strong"

[Asia Economy New York=Special Correspondent Joselgina] A prediction has emerged that the likelihood of the United States entering a recession within the next year is virtually 100%. As inflation, which has been stubbornly persistent, accelerates the Federal Reserve's (Fed) high-intensity tightening measures, warning signs are being confirmed one by one in major indicators. This means that the "economic hurricane" warned by Jamie Dimon, the "Emperor of Wall Street" and chairman of JP Morgan Chase, is approaching. However, Brian Moynihan, CEO of Bank of America (BoA), presented an "economic optimism" by stating that despite inflation and interest rate hikes, the purchasing power of American consumers remains strong.

◇ Bloomberg Economics: "100% Chance of Recession Within 1 Year"

On the 17th (local time), Bloomberg News reported that based on Bloomberg Economics' recession probability model, the estimated probability of a recession within the next 12 months has reached 100%. This is a sharp increase from the previous survey's 65%.

Bloomberg Economics diagnosed that "recent economic and financial indicators have generally deteriorated," reflecting that inflation, a tightening financial environment, and expectations of further Fed rate hikes are raising recession risks. The probability of a recession within 11 months rose from 30% to 73%, and within 10 months from 0% to 25%.

Surveys by local media also confirm that the possibility of a U.S. recession is growing. In a survey conducted by Bloomberg of 42 economists, the probability of entering a recession within the next 12 months jumped from 50% last month to 60% this month. The Wall Street Journal (WSJ) also reported the previous day that in a survey of 66 economists, the average response for the "probability of a recession within 12 months" was 63%. Additionally, 58.9% of economists predicted that the Fed's excessive rate hikes could cause unnecessary economic deterioration.

Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, also appeared on CNBC that day and warned that the central bank Fed's excessive tightening could push the U.S. economy into a deeper recession than necessary. James Knightley, ING's chief economist, pointed out, "The financial tightening environment is clearly a headwind to growth," adding, "This comes at a time when consumers and businesses are already under tremendous pressure from rising costs, declining stock markets, and asset values."

◇ Diverging Views on Wall Street... Moynihan: "Consumption is Strong"

Amid rapidly increasing economic uncertainty, diagnoses from CEOs of major U.S. banks are somewhat divided. BoA's CEO Moynihan repeatedly emphasized at the earnings conference that consumption, which accounts for 70% of U.S. economic activity, remains strong.

According to BoA, payment amounts using credit cards and other means from September to early October last year increased by 10% compared to the same period the previous year. Moynihan argued that besides price increases, the number of transactions itself rose by 6%, confirming a high level of purchasing power. After mentioning low delinquency rates and deposit balances higher than before the COVID-19 pandemic, he said, "There are no signs of consumer weakness," and predicted that solid consumer spending would continue for the time being.

In a separate interview with Bloomberg TV, he also stated, "Consumers are still spending, have money, are employed, and have good credit," evaluating that "this makes the Fed's job of slowing the economy to curb inflation difficult." This is interpreted as a message that there are no signs of recession yet and even if it materializes, it will be shallow.

Moynihan's diagnosis significantly contrasts with that of Dimon, who has repeatedly warned this year that an "economic hurricane" is approaching. After last week's earnings announcement, Dimon said, "A big headwind is right ahead," citing inflation, interest rate hikes, uncertain quantitative tightening (QT) effects, the Russia-Ukraine war, and the energy crisis as concerns.

This content was produced with the assistance of AI translation services.