Bank of America economists expecting mild recession this year

Bank of America economists predicted that the United States will face a mild recession this year in a report released on Wednesday. 

The economists previously forecast the economy underachieving its potential but still having positive growth output, but economic momentum has slowed more rapidly than they predicted. The report states that the most concerning trend is slowing momentum in spending on services. 

The analysis comes as the Labor Department reported Wednesday that the consumer price index was up 9.1 percent over last June, the highest increase in four decades. 

The Federal Reserve raised interest rates by three-quarters of a percentage point last month in an attempt to cool off the economy and slow price increases, the largest increase since the 1990s. Some economists have expressed worries that these efforts may lead to a recession. 

The report states that the Bank of America economists expect a mild recession to begin in the second half of 2022, with real gross domestic product (GDP), a measure of the value of the economy’s goods and services adjusted for inflation, declining 1.4 percent in the fourth quarter of the year. 

The forecast then predicts a 1 percent real GDP increase in 2023. 

The combination of the decrease this year and below-trend growth for much of next year is projected to raise the unemployment rate from 3.6 percent to 4.6 percent, according to the report. But it said the more significant economic downturn and the higher unemployment rate should also improve inflation somewhat faster than previously expected.

The economists expect the Fed to raise interest rates another three-quarters of a percentage point this month, with the goal of rates being between 3.25 and 3.5 percent by the end of the year. Interest rates remained near zero throughout much of the pandemic to incentivize economic investment.

Multiple other banks, including Deutsche Bank, have predicted a recession is coming in the near future amid concerns over the Fed’s ability to achieve a “soft landing” to inflation.