Bank of America CEO Brian Moynihan said Friday that the current state of the economy doesn’t meet the definition for a recession—thanks in part to robust consumer spending and a tight labor market—and instead should be understood as a “mitigation of the rate of growth.”
This came after the economy posted two consecutive quarters of negative growth—the common rule-of-thumb definition for a recession—at the beginning of the year, but the official shot-callers at the National Bureau of Economic Research (NBER) have not labeled it as such.
Despite numerous analysts insisting that the U.S. economy has, in fact, fallen into a recession, the Biden administration seized on the fact that the NBER—which uses a broader definition than GDP—hadn’t made its call and insisted there was no recession.
Wall Street has mostly toed the White House line on whether the economy fell into a recession or not, though expectations have been building that the economy will tip into one at some point over the next year or so as the Federal Reserve hikes rates aggressively in an aggressive bid to curtail soaring inflation.
‘No Question’ US Headed for Recession
Moynihan said that numerous analysts—including the team at the Bank of America—are predicting a recession, but that Thursday’s positive GDP print has pushed out those forecasts a little further.But he said “there’s no question” that when the Fed raises rates at its fastest pace since the 1980s and is determined to slow the economy to cool inflation, there will be a recession.
“And so we’ve got a recession predicted early to mid next year,” he said.
At the moment, however, Bank of America analysts don’t see the conditions for a recession currently because the job market has remained robust, underlying activity remains strong, consumer spending has yet to falter, and the massive government stimulus is still having an effect before it becomes depleted, he said.
“You’re seeing a mitigation of the rate of growth, not a slowdown. Not negative growth,” he said, adding that household and business credit remains strong and that expectations for a slowdown in consumer have yet to materialize.
‘Rooting for a Downturn’
Meanwhile, President Joe Biden said in a statement following Thursday’s GDP release that “for months, doomsayers have been arguing that the U.S. economy is in a recession” and that Republicans have been “rooting for a downturn.”“But today we got further evidence that our economic recovery is continuing to power forward,” he added.
Yet despite Biden’s optimistic take on the economy, clouds have been building on the horizon.
Stagflationary winds in the United States have also intensified, with recent data from the Federal Reserve Bank of Richmond showing a sharp drop in manufacturing activity at the same time as inflationary pressures grew.
