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‘Recession shock’ is coming, Bank of America warns

'Recession shock' is coming, Bank of America warns

The “inflation shock” is getting worse, the “interest rate shock” is just beginning, and the recession shock is “coming,” Michael Hartnett, senior investment analyst at Bank of America wrote in a note to clients on Friday.

The warning came ahead of a new government report on Tuesday Consumer prices showed a rise of 8.5% in March, the fastest pace since December 1981. There was a record price rise throughout the year on everything from new cars and men’s clothing to baby food and salad dressing.
Inflation is “out of control,” Hartnett wrote, adding: “Inflation is causing a recession.”

Although the recent recession has ignited pandemic, economic expansions often ending in The Federal Reserve is pressing the brakes to fight rising inflation.

Markets are preparing for the Federal Reserve to raise interest rates quickly, at the fastest pace in decades, to control prices. The risk is that the central bank will do too much, dumping the economy in the process.

“Sluggish” price movements in the markets

Bank of America is not explicitly calling for a recession in the United States. But the bank raises the specter of a slowdown and points to signs of a recession on Wall Street.

Hartnett noted that price action in financial markets was very “sluggish,” citing sharp declines for economically sensitive homebuilders, semiconductor manufacturers, small businesses, retail and private equity.

Global growth expectations fell to record levels in April among fund managers surveyed by Bank of America, according to a separate report published Monday.

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This survey also showed that earnings expectations among investors fell to the weakest level since March 2020, Approaching levels seen during other concerns including the collapse of the Lehman Brothers in 2008 and the bursting of the internet bubble in 2001.

Last week, Deutsche Bank became the first major bank to forecast a recession. The bank expects the Federal Reserve to push the economy into a “moderate” downturn beginning in late 2023.

labor market cooling

But others believe the Fed may be able to tame inflation without causing a recession.

In order to control inflation, Goldman Sachs said in a report Monday night that economic growth must regress to a “modest pace below trend — enough to persuade companies to halt some of their expansion plans, but not so much as to trigger sharp cuts in current production and employment.”

When the demand for labor falls significantly, periods of contraction tend to follow. Goldman Sachs said there was no increase in the unemployment rate of more than 0.35 percentage points on a three-month average basis that was not linked to a recession.

Deutsche Bank is the first major bank to predict a recession in the US

Although the overheating job market “significantly increased the risks of a recession”, the bank does not currently expect a recession in the United States.

Goldman Sachs said his relative optimism rests on strong corporate and household balance sheets and his belief that calming the labor market should be made easier by the post-Covid normalization process that will allow more workers to slip off the sidelines.

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