"Inflation Drains US Consumer Spending Power"…Wall Street Warning Revives the 'Fear of R'

[Asia Economy New York=Special Correspondent Joselgina] The so-called ‘R (Recession) fear’ has revived in global financial markets. This is because Wall Street heavyweights simultaneously issued recession warnings amid expectations that the Federal Reserve's (Fed) tightening will last longer than anticipated due to an overheated labor market. As a result of the continuous warnings, investor sentiment froze solid, and on the 6th (local time), the New York stock market plunged across the board.

The first to sound the recession alarm that day was Jamie Dimon, CEO of JP Morgan Chase, known as the ‘Emperor of Wall Street.’ In an interview with economic media CNBC, Dimon said that high inflation has drained Americans' spending power, stating, "These factors could derail the economy and cause a mild or severe recession sometime next year."

On the same day, David Solomon, CEO of Goldman Sachs, presented a gloomy outlook at a financial conference held in New York. He said his economic forecast is "more cautious" than that of his company's economists, implying that the economy is effectively tipping toward recession. In an interview with Bloomberg TV, he also warned of the possibility of a U.S. recession next year, saying, "We have to assume we are entering a rough period."

Brian Moynihan, CEO of Bank of America (BoA), who had previously offered relatively optimistic forecasts among Wall Street CEOs, also joined the chorus of warnings. Moynihan predicted that the U.S. economy would record negative growth in the first half of next year. He particularly pointed out signs of weakening consumption, which accounts for a significant portion of the U.S. economy, as recent spending has slowed. Global factors that could turn a mild recession into a severe one include the intensification of the Russia-Ukraine war, worsening Taiwan issues, and a European recession.

It is considered unusual that Wall Street heavyweights simultaneously issued recession warnings despite U.S. economic indicators still showing a relatively good level. However, they expected the recession next year to be less severe than anticipated. Dimon said, "It is still uncertain whether it will be mild or severe," but added, "As risk managers, we must prepare for both."

On that day, Dimon cited household savings accumulated through relief programs during the COVID-19 pandemic as the reason behind recent favorable indicators such as consumer spending. However, these household savings are on the decline. Bloomberg reported, "If the reduction in savings leads households to focus consumption on essential goods, prices of consumer goods will fall, resulting in decreased corporate profits," indicating that a recession could occur in 2023.

CEOs of major corporations are also sounding alarms. Scott Kirby, CEO of United Airlines, predicted, "A mild recession caused by the Fed is possible next year." Lance Fritz, CEO of railroad company Union Pacific, diagnosed that "the U.S. economy is clearly slowing down" when looking at the logistics business environment. Both are industries sensitive to recessions. Doug McMillon, CEO of retail giant Walmart, noted, "Inflationary pressures remain in some items," adding, "We do not want a recession, but it may be a necessary evil to ease inflation."

Amid recession warnings originating from Wall Street, the New York stock market closed lower across the board that day. The Nasdaq Composite Index, centered on technology stocks, fell 2.0% from the previous session. The Dow Jones Industrial Average, composed of blue-chip stocks, and the large-cap S&P 500 Index also retreated by 1.03% and 1.44%, respectively.

Concerns over the Fed’s prolonged high interest rates combined with recession fears led to a four-day consecutive decline (based on the S&P 500). Until the end of November, the New York stock market showed signs of a rally due to expectations of the Fed slowing its pace, but the mood reversed after better-than-expected economic indicators and an overheated labor market were confirmed. The Nasdaq index alone has dropped nearly 4% over the past two trading days.

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