- Wells Fargo said the US economy will head into a recession in 2023 after the Federal Reserve raised interest rates by the most since 1994.
- The Fed’s move has caused analysts across Wall Street to cut their forecasts for US economic growth.
- The central bank itself envisions having to cut interest rates in 2024, indicating that it expects growth to slow sharply.
Economists at Wells Fargo said Wednesday that they expect the U.S. to head towards a level
In the year 2023 after
It raised interest rates by the most since 1994 in an attempt to stifle inflation.
The Fed’s move led to a shift in Wall Street’s views on the US growth outlook, with analysts across the board saying recession risks are rising.
Central Bank on Wednesday raise interest rates By 75 basis points — far more than the traditional 25 basis point increase — to move the target fed funds rate range to 1.5% to 1.75%.
Fed officials said, given the current situation, they envision raising interest rates to about 3.8% in 2023.
Wells Fargo said sharp increases in interest rates, which will raise borrowing costs across the economy, are likely to trigger a “moderate recession” in mid-2023.
The bank’s chief economist, Jay Bryson, previously believed that the Fed could tame inflation without significantly slowing growth.
“In our view, the recession would be more or less equivalent in size and duration to the contraction of 1990-91. This recession lasted two quarters with a peak-to-trough decline in
of 1.4,” Bryson said in a note to clients on Wednesday.
Wells Fargo was not the only one to become more pessimistic about the US economy on Wednesday.
Sima Shah, chief strategist at Principal Global Investors, said the Fed’s updated economic outlook suggests a recession could be on the way, even if President Jerome Powell told reporters that such a fate could still be avoided.
“The Fed has abandoned the ‘clean inflation’ scenario, acknowledging instead that unemployment is likely to rise if they have any hope of lowering inflation,” she said.
“And while recession is not explicit in their forecast, a 0.5% increase in the unemployment rate by the end of 2024 certainly indicates a recession.”
The Fed’s own “plot point”, which Maps Officials’ views on the direction of interest rates have shown that borrowing costs are likely to fall to around 3.4% in 2024. This indicates that policymakers expect to have to cut rates again as the economy slows.
“Moving more aggressively and faster has an economic cost,” said James Knightley, chief international economist at Dutch bank ING Bank. “Higher recession risks mean that interest rate cuts will be on the agenda for the summer of 2023.”
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