Wall Street’s recession forecasts for 2023 are wrong and the economy is poised to keep growing, Fed President James Bullard says

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APRIL 18, 2023

  • Warnings of a coming recession this year are wrong, St. Louis Fed President James Bullard said.
  • Bullard pointed to strong economic data and shrugged off fears of an economic contraction.
  • A strong labor market and strong consumption are likely to fuel a “big chunk” of the US economy.

Wall Street is wrong for sounding the alarm on a recession in 2023, and the US economy will keep expanding this year, according to St. Louis Federal Reserve President James Bullard.

“Wall Street’s very engaged in the idea there’s going to be a recession in six months or something, but that isn’t really the way you would read an expansion like this,” the central banker told Reuters in an interview published Tuesday.

Strategists have flagged the rising risk of a downturn for months, with markets dragged lower last year amid rising inflation and aggressive interest rate hikes from the Fed. Central bankers raised rates aggressively in the last year to rein in high prices, bring borrowing costs to levels experts say could push the economy into a recession.

But Wall Streets’ recession calls are putting too much emphasis on the rapid pace of rate hikes, Bullard said, pointing to more positive economic indicators. Inflation is on the decline, cooling to 5% in March.

The economy is also being boosted by a robust jobs market, strong consumption, and leftover pandemic stimulus cash, which experts say could insulate the US from a sharp downturn.

Those factors could fuel growth in a “big chunk of the economy,” Bullard said, waving off Wall Street’s grim prognostications of a painful recession at some point in 2023.

And while Fed economists said they expected a mild recession to strike later this year, that gloomy forecast was likely prompted by the failure of Silicon Valley Bank last month, which set off fears of another 1980s-style banking crisis.

And there’s little evidence of that happening, Bullard said: The St. Louis Financial Stress index is now hovering around zero, while the index typically measures around 4-5 in event of a financial crisis.

“It doesn’t seem like the moment to be predicting that you have a recession in the second half of 2023,” Bullard said, though he acknowledged it would take more time and higher interest rates to tame inflation.

His view echoes that of other observers, who say the Fed can’t afford to back off interest rate hikes prematurely, at the risk of inflation rebounding and spiraling out of control.

Prices are still well-above the Fed’s 2% inflation target, and core inflation, which reflects inflationary pressures in the economy, accelerated in March. Markets are pricing in an 87% chance that the Fed will raise rates another 25 basis-points at its next policy meeting in May, which would raise the Fed funds rate to a target range of 5%-5.25%.


Courtesy/Source: Business Insider