Bank of America economists are now longer forecasting mild recession this year in the US, saying household spending and the labor market have both held up better than expected as the Federal Reserve raised interest rates.
“Our previous expectation for the US economy included a mild recession that began later this year. We based that view, in part, on incoming data which suggested household spending was weakening in the face of an inflation-induced shock to real income,” analysts led by Michael Gapen, the bank’s head of US economics, said in a report Friday. “Since that time, incoming data has suggested US households and labor markets have retained more momentum than we expected.
The analysts are still forecasting three quarters of contraction but they now see the negative growth starting in the first quarter of next year. GDP is expected to fall 0.5 percent first three months of the year and then by one percent in each of the two quarters that follow. The previous estimate was for a 0.5 percent contraction in the first quarter followed by growth of one percent in the second and 1.5 percent in the third.
“We strongly believe that history suggests that the Fed is willing to surprise financial markets when it comes to policy rate cuts but not when it comes to rate hikes,” the bank’s analysts wrote in a separate note published Thursday.
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