Wall Street is sounding the alarm about the U.S. economy, with a number of banking experts predicting the country is headed for recession.
The CEOs of big American banks including Jamie Dimon of JPMorgan, Brian Moynihan of Bank of America and Jane Fraser of Citigroup are today testifying before the U.S. Senate Banking Committee's annual Wall Street oversight hearing.
Their testimony comes as the U.S. economy has been hit with soaring inflation over the last year. Inflation has declined from 9 percent in Jun 2022 to 3.2 percent in October 2023, but it is still above the Fed's target of 2 percent.
Since March 2022, the Federal Reserve has responded by hiking interest rates 11 times to 5.5 percent. This has elevated borrowing costs for a range of goods including housing, car and business investments, sparking concerns about a potential recession, which is typically defined by analysts as two consecutive quarters of contracting gross domestic product (GDP).
On Tuesday, prior to the hearing, Fraser, the head of the third-largest bank in the U.S., said in prepared remarks released by the Senate Banking Committee a recession might happen because of a confluence of factors including inflation, rising debt levels and the wars between Russia and Ukraine and Israel and Hamas.
She said people are spending less and customers in low bands of credit scores are taking on the highest levels of debt since 2019. However, she said she does not "see a drastic downturn on the horizon."
Meanwhile, last week Dimon warned rising inflation and interest rates were recessionary indicators.
"A lot of things out there are dangerous and inflationary. Be prepared," he said at the 2023 New York Times DealBook Summit in New York. "Interest rates may go up and that might lead to recession."
In October, Apollo Management's chief economist Torsten Sløk said the US is headed for a recession but that it is likely to be milder than previous slumps.
Newsweek has contacted the Federal Reserve Board and the U.S. Treasury by email to comment on this story.
However, other commentators have offered different insights regarding the state of the U.S. economy. Data published last month from Bank of America's Global Research division shows the U.S. may be on track to avoid recession in 2024.
The bank's report forecasts a soft landing rather than a recession, meaning inflation may moderate despite high interest rates without much damage to the labor market, and said inflation will slow down, meaning the Fed will be able to cut rates by 0.25 percent per quarter in 2014. However, a survey of experts by the Financial Times suggested the Fed won't cut interest rates until July 2024.
Meanwhile, a November Consumer Confidence Survey from the Conference Board showed that expectations of a recession fell to their lowest level in 2023, even as two-thirds of those surveyed still anticipate a slowdown over the next year.
IMF projections predict there will be 2.1 percent growth for the year, and GDP grew at an annual rate of 2.1 percent in the second quarter of 2023 and 5.2 percent in the third quarter.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Kate Plummer is a Newsweek reporter based in London, U.K. Her focus is on U.S. politics and national affairs, and ... Read more
