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Wall Street reversal: More and more economists are changing their minds and declaring US recession fears dead

Aug 2, 2023, 22:40 IST
Business Insider
Photo by Justin Sullivan/Getty Images)
  • Bank of America said it does not think a recession is likely this year.
  • It joins the Federal Reserve and other economists in casting recession concerns to the side.
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It's the ultimate will-they won't-they: Will the American economy slide into recession this year? After much hemming and hawing from economists and Wall Street, Bank of America is the latest to revise its predictions — and says a severe economic downturn isn't likely.

"Recent incoming data has made us reassess our prior view that a mild recession in 2024 is the most likely outcome for the US economy," BofA economists wrote in a note on Wednesday, per Bloomberg, pointing to solid economic growth, and the near-record low unemployment rate.

In doing so, BofA is joining a rising chorus saying that fears of a recession were unfounded. All of the potential harbingers of recession haven't actually brought the downturn that many were forecasting, and, as Neil Dutta wrote for Insider, "the economic doomsday clock has been reset."

The bank also joined Goldman Sachs' Chief Economist Jan Hatzius, who predicted in a July bank note that the odds of recession in the next 12 months now stand at 20%, down from its earlier 25% forecast.

Last month, the Federal Open Market Committee announced it was raising interest rates by 25 basis points, following a June pause during which rates were held steady. While Federal Reserve Chair Jerome Powell said during the July press conference that the rate increase was necessary to continue inching toward the central bank's 2% inflation target, he also noted the committee changed tune with its recession outlook — and it no longer has a severe economic downturn in its forecast for this year.

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"We are resolutely committed to returning inflation to our 2% goal over time," Powell said. "Inflation repeatedly has proved stronger than we and other forecasters have expected and at some point that may change. We have to be ready to follow the data. And given how far we've come, we can afford to be a little patient as well as resolute as we let this unfold."

With the committee predicting a chance of recession at its previous meetings since the beginning of the year, its new outlook suggests a soft landing — in which the Fed can continue fighting inflation while avoiding recession — is even more achievable. It's something Treasury Secretary Janet Yellen has expressed, as well, saying during an interview last month that "I don't expect a recession. The most recent inflation data were quite encouraging."

Of course, there are still some major players wary of a downturn. Fitch, which suddenly and unexpectedly downgraded the US's credit rating two months after a major debt ceiling battle yielded a deal that will carry through 2025, is still anticipating a downturn. The firm — whose downgrade decision was criticised by government officials and economists— is warning of more turmoil ahead, forecasting a mild recession in the last quarter of 2023 and the first quarter of 2024.

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