BofA: US in mild recession by 2022

Bank of America economists now forecast a “mild recession this year” in the US, noting that spending on services is slowing and “hot” inflation is curbing consumer spending.

In particular, as reported by Bloomberg, BofA’s analysis team led by Michael Gapen reports that “a number of forces are helping to slow economic momentum faster than we previously expected.”

These forces include food and energy inflation that leaves households with less money available for secondary purchases, as well as tighter financing conditions, with higher mortgage rates.

Against this backdrop, BofA economists expect that in the fourth quarter of 2022 US GDP will decline by 1.4% from a year ago, although this will be followed by a 1% increase in the first of 2023.

This will raise the unemployment rate by 1% to around 4.6%, in turn helping to contain inflation.

It is noted that today’s report by the Ministry of Labor showed that the consumer price index increased by a beastly 9.1% compared to last year, far exceeding estimates.

For their part, however, BofA analysts estimate that inflation in the country will return to the Fed’s target of around 2% by the end of 2024.

“Hot” inflation data will nevertheless keep Fed officials on the hawkish path and add pressure to President Biden and congressional Democrats, whose ratings are slipping ahead of regional elections.

The Fed raised interest rates by 75 basis points (0.75%) last month – its biggest move since 1994 – and most Fed officials have signaled that another hike of the same magnitude is on the table for July.

For their part, BofA economists expect the Fed to reach its key interest rate range of 3.25-3.5% by the end of the year, an estimate that includes another 75bp hike. at the next meeting.