American bank Chief Executive Brian Moynihan said on Friday that the bank is preparing for a potential recession this year, including the possibility of a sharp downturn as unemployment rises rapidly.
“Our base case envisages a mild recession,” he said during a call with investors. “But we also add to that a negative scenario, and what comes out of that is that 95% of our reserve methodology is heading towards a recessionary environment in 2023.”
In the case of a more severe recessionMoynihan said the second-largest US bank expects the unemployment rate to rise to 5.5% in 2023 and remain at 5% or higher through 2024.
The US economy faces turmoil in 2023 as recession fears grow
A number of Wall Street banks expect an economic downturn this year, although they remain unsure of its severity. It includes Goldman SachsAnd Wells Fargo and Deutsche Bank.
Banks are preparing To recession because persistent and high inflation push The Federal Reserve raises interest rates at its fastest pace since the 1980s, threatening to curtail consumer and business spending by driving up borrowing costs. Policymakers have already approved seven consecutive interest rate increases in 2022, which have pushed the federal funds rate to a range of 4.25% to 4.5% — the highest level since 2007 — and projected a peak rate of around 5%.
Federal Reserve Chairman Jerome Powell He said the central bank has more work to do regarding its anti-inflationary campaign, despite early signs that prices are starting to cool off.
“Inflation data for October and November show a welcome decline,” Powell told reporters in December at the conclusion of the Fed’s policy-setting meeting. “But substantially more evidence is required to give confidence that inflation is on a sustainable downward trajectory.”
The Fed’s preferred inflation measure cooled in November, but prices remained very high
Officials also noted that economic growth will slow sharply in 2023 and unemployment will rise dramatically to a rate of 4.6% as interest rate hikes will bring the US to the brink. Recession. The Fed expects the unemployment rate to remain high in 2024 and 2025 as steep rates continue to weigh on the economy.
However, Powell disputed the certainty of a recession, noting that low rates of inflation could boost prospects for a soft landing—the perfect point between curbing inflation without stabilizing growth.
“To the extent that we need to keep rates higher and keep them there longer and inflation moves higher and higher, I think that narrows the runway,” Powell told reporters. “But lower inflation readings, if sustained, in time could certainly make it possible. I don’t think anyone knows whether or not we’re going to have a recession, and if we do, whether it will be one or not. It’s unknown.”
Bank Profits Beat Expectations Despite Headwinds, JPMORGAN CEO ‘Ready For Whatever Happens’
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Bank of America said fourth-quarter revenue rose 11% to $24.5 billion. Net income was flat, at $7.1 billion, compared to $7 billion in the prior year quarter.
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Net income in the Retail Banking unit grew by 15% but fell by 2% in Global Wealth and Investment Management.