With growing turbulence in the Middle East, Wall Street’s big 2023 argument about whether the US economy is destined for a recession is making a comeback.
Business executives are preparing for a downturn due to elevated geopolitical risk, persistent inflationary pressures, rising bond yields, and the Federal Reserve’s “higher for longer” policy.
Paul Knopp, the CEO of KPMG US, stated on Yahoo Finance Live that there is “a lot of fog on the horizon” and that one of the biggest threats to the economy is geopolitical tensions.
As per a survey conducted by The Conference Board among business executives, 72% of CEOs are getting ready for a recession in the United States within the next 12-18 months. Even while it’s better than it was at the beginning of the year, expectations for the near-term economic picture have decreased.
large bank CEOs are among those offering their opinions on the precarious state of the economy. Jamie Dimon, the CEO of JPMorgan Chase (JPM) highlighted several possible hazards, issuing a sobering alert on international geopolitical problems. Jane Fraser, CEO of Citigroup (C), mentioned “an increasingly cautious consumer” in the bank’s earnings statement on Friday.
Fraser’s observation that consumer spending is starting to show fractures has received attention lately. Bill Newlands, CEO of Constellation Brands (STZ), stated this week on Yahoo Finance Live that consumers are already “spending a little less” and are becoming more “careful” about the products they purchase.
This is worrisome since, with consumer spending accounting for roughly 70% of US GDP, the robust consumer has helped the US economy so far this year defy predictions of a recession.
Furthermore, the latest sentiment data isn’t very promising. October saw the lowest level of consumer mood in five months, largely due to families’ expectations of greater inflation in the upcoming year.
Furthermore, sticky inflation concerns the Fed as much as consumers. September prices were stable at 3.7%, according to the most recent statistics from the Bureau of Labour Statistics, significantly above the Federal Reserve’s 2% target.
Lead US economist at Oxford Economics Michael Pearce wrote a note to clients this week that stated, “With the Fed committed to returning inflation back to its long-run target of 2%, this would raise the odds of rate increases this year, extend the duration of restrictive monetary policy, and increase the chances of a recession occurring down the road.”
In summary, it’s safe to say that the economic picture is still unclear, but it’s still anyone’s guess as to the likelihood of a recession. Liz Young, Head of Investment Strategy at Sofi (SOFI), put it succinctly when she told Yahoo Finance, “We are not out of the woods just yet.” “Before things get better, they might get worse.”