Key oil benchmarks rose to a 10-month high this week – posing a threat to the U.S. economy, Bank of America strategists warned. Neil Kremer
- According to Bank of America, a hard landing for the US economy cannot yet be ruled out.
- Strategists led by Michael Hartnett warned that oil, the dollar and the Federal Reserve still pose threats.
- Their gloomy outlook is at odds with much of Wall Street, as top banks and the Fed itself have shelved their recession forecasts.
According to Bank of America, the US economy is not yet in order due to the triple threat posed by rising oil prices, the dollar and the Federal Reserve.
Strategists led by Michael Hartnett said Friday that there remains a risk of a “hard landing” – meaning a sharp downturn in economic activity that follows a period of growth.
Higher oil prices, the dollar’s recent rally and the possibility of further interest rate hikes pose a threat to stock prices in September and October, increasing the “likelihood of a hard landing over the next six months,” Hartnett’s team wrote in an Insider research note.
The strategists’ gloomy outlook is at odds with much of Wall Street, with top banks and even the Fed itself shelving their recession forecasts in recent weeks.
On Tuesday, Jan Hatzius, chief economist at Goldman Sachs, said the odds of the U.S. suffering a severe growth slowdown are now just 1 in 7, citing cooling inflation and the resilience of the labor market.
Hartnett’s team said there was a 20 percent chance of a hard landing, but warned that the trifecta of oil, dollar and Fed still posed an economic threat.
Crude oil benchmarks Brent and West Texas Intermediate hit 10-month highs this week as both Russia and Saudi Arabia press ahead with long-announced production cuts – and analysts fear this could push inflation back up.
Meanwhile, an indicator of the dollar’s strength hit a six-month high on Thursday – and while a strengthening dollar is often seen as a sign of economic strength, it also means American companies that do most of their business abroad will end up making lower profits .
Finally, Bank of America strategists issued a warning about “higher longer-term” interest rates amid signs that the Fed may not be done tightening yet.
Boston Fed President Susan Collins said Wednesday that the central bank needs to see more evidence that inflation is falling before it ends its fight against rising prices – and over 40% of traders predict it will Interest rates will rise again this year in 2023, according to the CME Group’s Fedwatch tool.
When borrowing costs rise, spending and investment tend to fall, negatively impacting an economy’s overall GDP growth.
WATCH NOW: Insider Inc.’s Popular Videos
Is loading…
Comments are closed.