Topline
Multiple billionaires are now predicting an oncoming recession in the U.S. economy before the end of next year, echoing alarms raised by financial institutions and CEOs as the Federal Reserve moved to tackle high inflation with a steeper-than-expected rate hike.
Key Facts
Elon Musk: The world’s richest person in an interview on Tuesday said a recession is “inevitable at some point” and will “more likely than not” happen in the near term.
Bill Gates: The Microsoft co-founder shared a similar sentiment in an interview with Fareed Zakaria last month, where he said he agreed with “the bears” that the world is heading towards an economic slowdown in the “near future” amid the fallout of the pandemic and Russia’s invasion of Ukraine.
Jamie Dimon: The JP Morgan CEO warned of an economic “hurricane” fueled by the conflict in Ukraine and high inflation and said his bank is preparing for “bad outcomes,” earlier this month.
Carl Icahn: The activist investor also warned of a recession “or even worse,” in an interview with CNBC back in March, blaming high inflation and expressing doubt if the Fed could “engineer a soft landing.”
Ken Griffin: The founder and CEO of Citadel, said in May that if the level of inflation remained around 8.5%—like it is currently—the Fed will need to “hit brakes pretty hard” pushing the economy into a recession.
Gary Friedman: The CEO of home furnishings retailer RH, referenced the movie “The Big Short” and said the U.S. economy was facing one of its most difficult periods since the 2008 Great Recession, in his company’s quarterly earnings call in March.
Key Background
Warnings about an upcoming recession have increased since the Federal Reserve’s decision last week to raise interest rates by 75 basis points to a target range of 1.5% to 1.75%—the steepest rate hike since 1994. The Fed’s decision came after the Labor Department released data earlier this month showing a higher-than-expected annual inflation figure of 8.6% in May. This is the largest 12-month increase in consumer prices the country has witnessed in over 40 years.
Contra
In an interview with the Associated Press on Sunday, President Joe Biden insisted that a recession was not “inevitable,” adding that people should not simply “believe a warning” and instead wait and see whose prediction is correct. The president pointed to low unemployment numbers and also that the U.S. was in a stronger position than other countries to fight high inflation. Treasury Secretary Janet Yellen also made similar comments on Sunday saying recession is not “at all inevitable,” but said she expected the economy to slow. She added that bringing down “unacceptably high inflation” was the Biden administration’s top priority.
Tangent
Apart from billionaires, several major financial institutions and business leaders have also warned about an upcoming recession either by the end of this year or sometime next year. On Tuesday, Goldman Sachs updated its forecast to a 30% chance of a recession over the next 12 months—up from 15% in April. A day earlier, Japanese investment bank Nomura warned that a “mild recession” sometime around the end of 2022 was now more “likely.” Deutsche Bank—the first bank to project an upcoming recession at the end of 2023—revised its forecast on Friday stating that it now expects an “earlier and somewhat more severe recession.” The German investment bank now predicts a 3.1% contraction of the GDP in the third quarter of 2023. In a recent note, the chief economist at Moody’s Analytics warned the risks of a recession were “uncomfortably high” and “rising.” Both Morgan Stanley CEO James Gorman and Wells Fargo CEO Charles Scharf expect any upcoming recession not to be very deep or long, however, the former places the odds at “50-50” while the latter suggests it would be “hard to avoid.” Ark Capital CEO Cathy Wood sharply criticized the Fed’s steep rate hike in a Twitter thread over the weekend and suggested the U.S. already fell into a recession in the first quarter of 2022.
