US economy has 40 per cent chance of being in recession next year

BofA Securities economists see roughly a 40 per cent chance of a US recession next year, with inflation remaining persistently high.

They expect US Gross Domestic Product growth to slow to almost zero by the second half of next year “as the lagged impact of tighter financial conditions cools the economy,” while they see just a “modest” rebound in growth in 2024, according to a research report Friday.

“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,” Ethan Harris, global economist at BofAS wrote, adding that the firm expects the Fed to hike interest rates to “above 4 per cent.”

They see the risk of a recession for this year as low.

The Fed on Wednesday approved its largest interest rate increase in more than a quarter of a century to stem a surge in inflation. The move raised the target federal funds rate by three-quarters of a percentage point to a range of between 1.5 per cent and 1.75 per cent.

Also, BofA Global economists lowered their global growth projections, citing inflation, the war in Ukraine and COVID-related lockdowns in China.

They now expect global economic growth of 3.2 per cent. They said they had forecast 4.3 per cent global growth going into 2022.

They see further risks to 2022 growth if strict lockdowns continue in China, and to 2023 growth if the US economy slips into recession.

The spike in energy prices amid the Russia-Ukraine war “has already sent inflation soaring across the world, which in turn has forced central banks into a more hawkish stance,” the economists wrote.

On Monday, Bank of America Corp’s (BAC.N) Chief Financial Officer Alastair Borthwick said that there is no sign of recession in the bank’s loan portfolio, which remains on a healthy trajectory.