NEW YORK, United States — The largest U.S. banks warned on December 12, 2022, that a potential recession could hit in 2023 as rising inflation threatens to weaken consumer demand.
Jamie Dimon, chief executive of JPMorgan Chase & Co, said the economy is likely to weaken. Inflation will reduce consumer purchasing power, he added.
“Those things might very easily derail the economy and lead to this mild to hard recession,” Dimon told CNBC.
Businesses and consumers are currently in good shape, Dimon said. But he warned that situation will not persist for long.
The Federal Reserve raised interest rates by 75 basis points to a range of 3.75% to 4% in November 2022. That was the central bank’s fourth straight meeting with such an increase.
Dimon believes that even after the Fed hikes the benchmark interest rate to 5%, it might take a break for three to six months. He said that “may not be sufficient” to reduce the high inflation rate.
Consumers currently hold $1.5 trillion in excess savings from pandemic stimulus programs. Dimon warned those savings may run out by the middle of 2023. That could reduce consumer spending and further weaken the economy.
The day after top bankers discussed the economic dangers, major bank shares dropped sharply. Goldman Sachs Group Inc., Morgan Stanley, and Citigroup Inc. each fell more than 2%. Bank of America lost over 4% of its value.
At a financial conference hosted by Goldman Sachs, Bank of America CEO Brian Moynihan told attendees that the bank’s research indicates “negative growth” in the first quarter of 2023. He described the contraction as “mild.”
Moynihan also said the lender’s investment-banking fees would likely drop by 55% to 60% in the fourth quarter compared to the same period last year. Trading revenue will probably increase by 10% to 15%, he added.
Goldman Sachs CEO David Solomon spoke at the same conference. “Economic growth is slowing,” Solomon said. “Our clients sound quite cautious when I speak with them.”
Despite the caution, Solomon noted that the employment market in banking remains “surprisingly tight.” Talent rivalry is “as fierce as ever,” he said.
Some banks are cutting jobs. Morgan Stanley is laying off about 2% of its staff, roughly 1,600 roles. Those cuts follow workforce reductions at Goldman and Citigroup, first reported by CNBC.
BlackRock Inc., the world’s largest asset manager, has suspended hiring except for essential positions, according to chief financial officer Gary Shedlin. “We’re making an effort to be a little more cautious,” Shedlin said.
The Federal Reserve’s interest rate increases aim to curb inflation, which has risen steadily over the past year. Some reports note the Fed’s actions may not be enough to lower inflation to the desired level.
President Trump said the Federal Reserve should be more cautious in raising rates, warning it could lead to a recession. His concerns echo those of many Americans worried about rising inflation’s impact on their purchasing power.
