U.S. economy could be heading to recession in next year, banks and

On May 19, 2022

The U.S. economy could be heading for a recession in the next year, according to growing warnings from banks and economists, as a sudden bout of economic pessimism hammers financial markets that had been counting on sustained economic momentum.

Although major swaths of the economy — including the job market and consumer spending — remain robust, there are mounting worries that rising borrowing costs for consumers and businesses, after years of near-zero interest rates, could cause a sudden retrenchment. The Federal Reserve has raised interest rates by 0.75 percentage points so far this year, while officials are signaling more aggressive hikes could be necessary to cool the economy. Continued uncertainty from the coronavirus pandemic and Russia’s invasion of Ukraine are adding to the uneasiness.

“Recession risks are high — uncomfortably high — and rising,” said Mark Zandi, chief economist at Moody’s Analytics. “For the economy to navigate through without suffering a downturn, we need some very deft policymaking from the Fed and a bit of luck.”

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This week alone, former Goldman Sachs chief executive Lloyd Blankfein warned of a “very, very high risk” of recession; Wells Fargo CEO Charlie Scharf said there was “no question” that the U.S. economy is heading toward a downturn; and former Federal Reserve chair Ben Bernanke cautioned that the country could be poised for “stagflation” — a slowing economy combined with high inflation.

Those concerns come amid new smatterings of data that point to economic cooling, particularly in interest rate sensitive sectors that are already feeling the brunt of the Fed’s promise to keep tightening monetary conditions. New home construction slowed in April. Mortgage demand continues to decline.

Some of the country’s largest and most influential retailers reported disappointing sales and profits this week due to higher costs and overstocked inventory issues, engineered to avoid supply chain disruptions, setting off a stock market meltdown. Walmart’s stock plunged more than 11 percent on Tuesday, its worst one-day loss in 35 years. On Wednesday, Target’s shares tumbled 26 percent, following a stunning 52 percent drop in quarterly profits, which executives attributed in part to cooling demand for big-ticket items like TVs, kitchen appliances and outdoor furniture.

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“While we anticipated a post-stimulus slowdown in these categories … we didn’t anticipate the magnitude of that shift,” Brian Cornell, Target’s chief executive, said in a Wednesday earnings call. “When we talk to our guests, they often express their concerns about a host of rapidly changing conditions, ranging from geopolitics to the high and persistent inflation they’ve been experiencing.”

Goldman Sachs this week revised down its forecast…