As the U.S. Federal Reserve (Fed) formalized a ‘pivot’ to end high-intensity austerity and return to cuts, expectations for a soft landing next year are growing, and half of the 10 major Wall Street investment companies say there is still a possibility of an economic recession next year. I looked ahead. Additionally, 6 out of 10 predicted that cuts would begin in June.
On the 21st (current time), the Bank of Korea’s New York office held a local meeting on the topic of ‘2024 outlook for the U.S. economic trend’ and said, “In the latest economic outlook, the Federal Reserve raised the growth rate of this year’s U.S. gross domestic product (GDP) from 2.1% to 2.6%. He added, “The forecast for next year was adjusted downward only slightly (0.1 percentage points),” adding, “This shows that the Federal Reserve’s confidence in a soft landing has increased.”
On the other hand, 10 U.S. investment banks compiled by the Bank of Korea were split evenly on whether there was an economic recession. Five investment banks, including JP Morgan, Bank of America (BoA), Barclays, Goldman Sachs, and Morgan Stanley, believe there will be no economic recession next year. In particular, Goldman Sachs and Morgan Stanley went further than the ‘soft landing’ scenario, in which there is no recession but the economy is slowing, and predicted a ‘no landing’ scenario in which the economy continues to grow without a ‘landing’. It is expected that the supply chain will be normalized, the Federal Reserve’s high interest rate cumulative policy will suppress excess demand after the pandemic, and an economic recession will be avoided as supply and demand are well matched.
On the other hand, Citi, Wells Fargo, Deutsche Bank, Nomura, and TD Securities predicted a mild economic downturn. The Bank of Korea’s New York office explained, “Those predicting an economic recession believe that the tailwind of supply chain normalization has reached its limits, but the cumulative effect of austerity policies is slowly manifesting itself, and vulnerable groups may experience difficulties.”
It has also been pointed out that next year, low-credit U.S. companies will be exposed to the accumulation of austerity measures, which could become a burden on the U.S. economy. This is because they are increasing high-interest borrowings through private lending, which is so-called ‘shadow banking.’ The Bank of Korea’s New York office assessed, “As financial support to companies at high risk of insolvency through private lending is increasing, the potential risk of low-credit corporate debt is increasing.”
According to the report, the size of global private equity loans has grown rapidly from $730 billion (KRW 950.5 trillion) in 2018 to $1.5 trillion (approximately KRW 2,000 trillion) in 2022, of which approximately 70% is estimated to have been handled in the United States. . This is believed to be because, as market capital dries up, the number of low-credit companies switching to private loans from banks with difficult screening has increased.
Meanwhile, the timing of the Federal Reserve’s interest rate cut predicted by 10 U.S. investment firms was different, with 6 giving weight to the possibility in June. Following Federal Reserve Chairman Jerome Powell’s unexpected dovish remarks on the 13th, Goldman Sachs advanced its cut forecast from December to March, and Bank of America advanced its cut forecast from June to March. Six companies, including Wells Fargo, JP Morgan, and Nomura, predicted June, and TD Securities predicted May. Goldman Sachs also significantly expanded the cut from 0.25 points to 1.25 points.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.