The Biden economy is a disaster.
In a note to clients, JPMorgan strategists gave their thoughts on the state of the economy.
There might be no way to avoid a recession.
They said, “The Fed is facing a difficult task on Wednesday, but it is likely already past the point of no return…a soft landing now looks unlikely, with the airplane in a tailspin (lack of market confidence) and engines about to turn off (bank lending).”
Earlier this month, Goldman Sachs boosted its recession odds.
A series of banking crises this month headlined by the failure of Silicon Valley Bank has forced analysts from multiple banks, including JPMorgan Chase, to rewrite their recession forecasts from scratch, as months of small victories against inflation and a relatively strong economy were potentially swept away in under two weeks.
Even if the government and the private sector are able to successfully contain contagion from the bank collapses spreading through the economy, the failures may still lead to lasting damage for the U.S. financial system. Some banks are teetering on the edge in Europe and the U.S., while jittery markets and the promise of stricter regulation could lead to a credit crunch—a steep decline in banks’ willingness to lend caused by a lack of funds.
The analysts referred to current challenges as a possible “Minsky moment,” named after the American economist Hyman Minsky, who famously predicted that extended bull markets naturally end in epic and monumental collapses. A Minsky moment happens when the inevitable check comes due and the house of cards finally falls down. JPMorgan analysts wrote our Minsky moment is nearing as the past few weeks alone have seen a number of economic and geopolitical threats to the world, including banking crises on both sides of the Atlantic, China striking a new diplomatic deal with Saudi Arabia and Iran, and Chinese President Xi Jinping’s high-profile trip to Moscow and visit with sanctioned Russian counterpart Vladimir Putin, who was recently issued an international arrest warrant for war crimes committed in Ukraine.
JPMorgan isn’t the only major bank to have downgraded its economic forecasts in recent weeks; Goldman Sachs also told clients last week the banking crisis could deliver a severe blow to U.S. economic growth. And former Treasury Secretary Larry Summers has warned multiple times in recent months even before the banking crisis that the economy could be headed for a “Wile E. Coyote moment,” having already run off a cliff edge but still blissfully unaware of the sudden crash about to happen.
JPMorgan strategists led by Marko Kolanovic, the bank’s chief global markets strategist, wrote in a message to clients Monday, “The Fed is facing a difficult task on Wednesday, but it is likely already past the point of no return.”
He continued, “a soft landing now looks unlikely, with the airplane in a tailspin (lack of market confidence) and engines about to turn off (bank lending).”
Benjamin Tal, the deputy chief economist at CIBC Capital Markets, said the chance of a recession in the United States and Canada has risen notably over the past two weeks.
The note from JPMorgan came out before the Federal Reserve met Wednesday.
The Federal Reserve ended up raising rates by 25 basis points.
The Federal Reserve on Wednesday enacted a quarter percentage point interest rate increase, expressing caution about the recent banking crisis and indicating that hikes are nearing an end.
Along with its ninth hike since March 2022, the rate-setting Federal Open Market Committee noted that future increases are not assured and will depend largely on incoming data.
“The U.S. banking system is sound and resilient,” the committee said. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation. The extent of these effects is uncertain. The Committee remains highly attentive to inflation risks.“
The increase takes the benchmark federal funds rate to a target range between 4.75%-5%. The rate sets what banks charge each other for overnight lending but feeds through to a multitude of consumer debt like mortgages, auto loans and credit cards.
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