Bank of America Raises Odds of Recession to 40 Percent

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Bank of America has changed its forecast for the likelihood of a U.S. economic downturn, predicting a 40 percent chance that America’s economy will tip into recession in 2023, joining the growing chorus of analysts warning a slowdown may be around the corner.

Analysts at BofA led by economist Ethan Harris wrote in a note on Friday that they expect the U.S. economic growth to slow to a trickle by the second half of next year, blaming the impact of tighter financial conditions as the Fed reverses its long run of easy money policies.

“Our worst fears around the Fed have been confirmed: They fell way behind the curve and are now playing a dangerous game of catch up,” Bank of America analysts wrote.

The Federal Reserve hiked rates by 75 basis points at its most recent monetary policy meeting, with more hikes—as well as balance sheet reduction—in the pipeline.

“We look for GDP growth to slow to almost zero, inflation to settle at around 3 [percent] and the Fed to hike rates above 4 [percent],” the analysts wrote, referring to their prediction for how high the benchmark Federal Funds rate will end up at the end of the current tightening cycle.

While BofA analysts raised the odds of a recession to 40 percent at some point in 2023, they believe the chances of a recession this year are low, given the lagged impact of higher interest rates.

They also expect only a “modest” economic rebound in 2024.

The analysts’ gloomier forecast adds to the growing number of economists and others who believe a U.S. recession is just around the corner.

‘More Severe Recession’

Deutsche Bank recently said in a note that a “more severe recession” is likely to occur in the near future and earlier than it had previously forecast.

“More than two months ago, we forecasted that the U.S. economy would tip into a recession by end-2023,” Deutsche Bank Chief U.S. economist Matt Luzzetti wrote in a note to clients on Friday.

By Tom Ozimek

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