‘Hard landing’ and recession more likely, says BofA

The Fed’s chances of avoiding a recession may be starting to fade. Samuel Colm — Bloomberg/Getty Images

The economy is flashing more warning signs that a soft landing may not be possible, plus a stronger-than-expected employment report this Friday that could be the nail in the coffin. There is. Over the past year, the Fed has taken a narrow path to contain inflation and avoid recession. Central banks have raised interest rates eight times in the last 12 months. This will affect consumer and business loans to cool the economy and prevent the undoing of the 1970s. But it doesn’t seem to work exactly.

Wages are rising and people are still spending tons of money. That’s good news for Americans personally, but less big news for the Fed. All of this leads to further upward pressure on inflation and a difficult job ahead for Fed Chairman Jerome Powell, or, in the words of Bank of America strategists led by Michael Hartnett, “classy vibes.” increase. In Thursday’s “Flow Show” notes for clients, he wrote that unless his February jobs report on Friday suggested a cooling in the labor market, the situation would “get worse” in his March. Flow Show argued that the crashed atmosphere would be worse without modest salary figures.

US employers added 311,000 jobs in February. This has slowed significantly since last month’s report that the economy exploded in January, adding more than half a million new jobs, but is still hotter than economists had predicted. The unemployment rate also rose slightly to 3.6% from his 3.4% in January (a 53-year low). Wages grew at 0.2% for him, the lowest monthly pace since February, but still rising. In other words, it represents a cooldown, but barely, a much higher number than the Federal Reserve would like.

The report surged far beyond Wall Street analysts’ expectations, who forecast earlier this week that the economy added about 200,000 jobs in February, with labor In the market’s historically tight recent history, it suggests the pace of hiring has not slowed much. So rapid hiring and wage growth usually accelerates inflation.

The complex nature of the new jobs report makes it difficult to see what the Fed’s next steps will be as officials discuss the size of the next rate hike later this month. The central bank was considering a smaller rate hike towards the end of last year, suggesting it could be even lower than last month’s 25 basis point hike, but a strong labor market and inflation persistence could mean more tightening going forward.

Moody’s Analytics economist Matt Coyer said: “Despite the welcome signs that the labor market is cooling, the continued dizzying pace of monthly employment growth is an indication that Fed policymakers are It will make people uneasy,” he said. luck“Market expectations have changed in recent weeks, and with recent strong employment and inflation data, we expect the Fed to return to raising rates by 50 basis points,” he said.

The BofA memo also argued that the 2022 and 2023 Nasdaq “bearishly mimics” the Dow Jones Industrial Average of the 1973-74 era, adding that “amid war, over-financing and labor strikes, the ” [and] Dead end economic policy. Hartnett also said the Fed’s rate hikes over the past year and promises of more rate hikes ahead could be “a prelude to a hard landing” for the economy, as the chances of the Fed averting a recession are starting to fade. I wrote that there is

In an equally bleak BofA memo last week, the team led by economist Aditya Bhave said the Fed would need to raise interest rates by as much as 5.5% from the current 4.50% to 4.75% range if it wants to bring inflation back to where it was before. I wrote that it might. Target annual rate of 2%. Analysts have written that the Fed will continue to raise rates until it finds a “pain point for consumer demand,” adding that “a recession seems more likely than a soft landing.”

Bank of America Chief Executive Brian Moynihan appeared to agree with analysts in an interview with Bloomberg earlier this week, but said this year’s recession is unlikely to be particularly severe. . He said the BofA research team envisioned a recession “beginning in the third quarter of this year” but expected a “minor recession” until economic growth picks up around the middle of next year. added.