Two-thirds of economists at the largest banks predict a recession in 2023

Two-thirds of economists at the largest U.S. financial institutions think a recession will come in 2023, according to a new survey.

The Wall Street Journal A survey of 23 primary dealers, the major financial firms that deal directly with the Federal Reserve, found that a majority expect a recession in the coming year.

Among the main economic concerns cited were declining personal savings, the downturn in the housing market and tightening lending standards at many banks.

It follows the Fed’s rapid rate hikes to counter rising inflation last year, with benchmark rates rising from near zero in March to a range of 4.25 percent to 4.5 percent by the end of the year.

The central bank predicts that it will be between 5 and 5.25 percent by the end of 2023. The forecast does not call for a rate cut before 2024.

Rising prices have forced consumers to save quickly, which surged during the COVID-19 pandemic

The Fed quickly raised interest rates in 2022 to fight inflation, increasing the risk of recession

The Fed’s policy rate is now at its highest level since before the 2008 recession as the central bank tries to bring inflation down without triggering an economic downturn.

By the Fed’s preferred measure, inflation is still running at nearly three times the 2 percent target, after rising earlier in 2022 at its fastest pace in 40 years.

Rising prices have forced consumers to quickly save on their savings, which soared during the COVID-19 pandemic thanks to stimulus measures and a slowdown in spending.

The personal savings rate fell to 2.4 percent in November, well below the pre-pandemic average of 8.8 percent in 2019.

Consumers are also increasingly tapping lines of credit to make ends meet.

Total household loans reached $16.51 trillion in the third quarter, up $351 billion from the previous quarter and up 8.3 percent from a year ago, the fastest annual increase in 14 years , according to data from the Fed.

The consumer price index rose earlier in 2022 at its fastest pace in 40 years

Household wealth (black line) fell another $400 billion in Q3 to $143 trillion, marking third consecutive quarterly decline

Total household borrowing reached $16.51 trillion in the third quarter, up $351 billion from the previous quarter and up 8.3 percent from a year ago

Higher interest rates have had the most dramatic impact on the housing market, where sales activity collapsed in the second half of last year.

The 30-year fixed mortgage rate passed 7 percent in October for the first time since 2002, more than doubling in a nine-month span.

It has deflated a red-hot housing market fueled by historically low borrowing costs and a rush to the suburbs amid the pandemic.

Existing home sales fell 7.7 percent in November from October, according to the National Association of Realtors — and November sales fell a whopping 35.4 percent year-over-year.

The NAR added that the current 10-month series of declines is the longest ever recorded in data stretching back to 1999.

Banks have also tightened lending standards in recent months, a traditional leading indicator of a recession.

Sales of existing homes fell by 35.4 compared to a year ago. For a variety of reasons, including the doubling of 30-year mortgage rates, Americans are refraining from buying homes

Of the primary dealers surveyed by the Journal, only five said they do not expect a recession in 2023 or 2024: Credit Suisse, Goldman Sachs, HSBC, JPMorgan Chase and Morgan Stanley.

Credit Suisse Senior US Economist Jeremy Schwartz wrote in the bank’s 2023 outlook: “Several historically reliable leading indicators provide recession signals, but in our view these measures fail to accurately assess recession risk in the current environment.”

Indeed, the conflicting signals from the economy since the pandemic have baffled many economists.

The unemployment rate remains relatively low at 3.7 percent. Fed policymakers predict it will rise to 4.4 percent this year.

The stock market spent much of 2022 bracing for a recession. The benchmark S&P 500 index ended the year with a loss of 19.4 percent.

It’s only the third annual decline since the financial crisis 14 years ago and a painful turnaround for investors after the S&P 500 posted a gain of nearly 27 percent in 2021.

All told, the index lost $8.2 trillion in value, according to S&P Dow Jones Indices.