Former Treasury Secretary Larry Summers believes that the Fed’s response to elevated inflation will lead to recession within the next two years.
Marketwatch via Yahoo Finance/Vivien Lou Chen
Recession is now the ‘most likely’ outcome for the U.S. economy, not a soft landing, Larry Summers says
Former Treasury Secretary Larry Summers, whose out-of-consensus views about the risks of persistent inflation have come true, is reiterating his concerns about a potential U.S. downturn: He now says a recession is “the most likely thing” partly because the Federal Reserve “is going to have to keep going [in its effort to subdue inflation] until we see disinflation.”
In an interview with Bloomberg Economics released on Thursday, Summers, a paid contributor to Bloomberg, said that “the odds on a hard landing within the next two years are certainly better than half, and quite possibly two-thirds or more.” One of the mechanisms that will bring about a recession is the central bank’s response to elevated inflation, Summers said, adding that “we’re not going to see disinflation back toward the target range until we see unemployment rise, meaningfully.”
The publication of Summers’s comments come just two days after the consumer price index data showed the annual headline U.S. inflation rate jumping to 8.5% in March, the highest level since 1981. The rate has remained well above the Fed’s 2% target for almost a year, putting central bankers under pressure to aggressively raise target lending rates. Expectations for higher rates are rippling out throughout the economy, with the average 30-year mortgage rate soaring to 5% for the first time in a decade. Meanwhile, financial-market participants continue to debate whether inflation has hit a peak.
CNN Business/Nicole Goodkind
Bank earnings signal dark clouds on the horizon
Wall Street’s biggest players have had a rough start to the year.
All of the biggest US banks saw profits take a hit in the first three months of 2022, ending a pandemic-era boom.
Citi, Goldman Sachs, Morgan Stanley and Wells Fargo all announced large year-over-year profit declines in their first-quarter earnings reports Thursday, joining JPMorgan Chase, which announced Wednesday that its first-quarter profit fell 42%.
Citi saw a drop of 46%, Goldman Sachs fell 42%, Morgan Stanley dropped 11% and Wells Fargo fell 21%.
Since 2020, banks have benefited from the longest bull run in history, record-high trade volumes, surging bank deal values, low interest rates and big reserve releases driving profit spikes.
Now executives are warning that the good times are coming to an end.
“It was a turbulent quarter dominated by the devastating invasion of Ukraine,” Goldman Sachs CEO David Solomon said in his company’s release Thursday. “The rapidly evolving market environment had a significant effect on client activity as risk intermediation came to the fore and equity issuance came to a near standstill.”
Fox Business/Megan Henney
Retail sales fall shy of expectations as consumers confront sky-high inflation
U.S. consumers continued to open their wallets in March, even as they confronted the hottest inflation in four decades.
Retail sales, a measure of how much consumers spent on a basket of goods ranging from cars to food and gasoline, rose 0.5% in March from the prior month, the Commerce Department said Thursday. Economists surveyed by Refinitiv expected sales to rise 0.6%. It marked a noted slowdown from the upwardly revised 0.8% gain in February.
The so-called core retail sales, which exclude automobiles, gasoline, building materials and food services and are most closely correlated with the consumer spending aspect of the nation’s gross domestic product, fell 0.1% in March after tumbling 0.9% in February.