Bank of America economists said that the risk of economic recession in the United States this year is low. They expect the economy to "bump landing" rather than a complete recession as the Federal Reserve tightens the financial environment.
However, they are increasingly worried about the economic outlook of the United States in 2023, as inflation shows sustained signs and the labor market is seriously overheated.
Inflation in the United States is at a 40 year high, and the Federal Reserve plans to deal with inflation through a series of interest rate hikes. But there are also concerns that the Fed's overly aggressive interest rate hike could plunge the economy into recession.
Bank of America economists said in a report on Friday: "the risk is low this year because the economy has enough power. It takes time for the fed to raise interest rates to affect economic growth."
"However, the Fed will face some difficult choices next year. We believe that the probability of a recession sometime next year is about one-third."
Earlier this month, the Federal Reserve raised interest rates by 50 basis points, the largest increase in 22 years, and hinted that a similar increase would be made.
The Bank of America said that with the Fed raising the interest rate to 3.4% by May next year, the US economy will continue to slow down and the growth rate is expected to fall to 0.4% in the last quarter of 2023.
"We expect the Fed's rate hike to be about 30 basis points higher than what the market has digested, which will further put pressure on financial markets," the bank said
They added: "the lag time from financial tightening to growth slowdown may be slightly longer than normal, putting downward pressure on growth."
"If the US economy does fall into recession, it may be mild by historical standards. There are relatively few economic imbalances, so the risk of a vicious feedback cycle working is lower than normal," Bank of America said
