Top executives from two of Wall Street’s biggest banks on Monday struck an optimistic note on the trajectory of the US economy, arguing that consumers are in good financial health despite clear market signals that a recession is looming.
As U.S. stocks tumbled into the bear market, Morgan Stanley CEO James Gorman said investors had forgotten that consumer and corporate balance sheets were “very strong” after government stimulus during the coronavirus pandemic and years of cheap borrowing.
“I’m totally relaxed about that. I don’t think we’re going to fall into a huge hole in the next few years,” Gorman said at a financial industry conference organized by Morgan Stanley.
He said markets “are not in a very good position” but he would rather have “unbalanced markets than the fundamentals that are particularly unbalancing in consumer credit.”
Nearly 70 percent of top academic economists polled by the Financial Times predict the US economy will slide into recession next year as the Federal Reserve hikes interest rates to curb the highest inflation in about 40 years.
Gorman put the likelihood of an impending recession at about 50 percent, up from his previous forecast of 30 percent, but he downplayed the likelihood that any downturn would be too severe or too long-lasting.
“I think eventually the Fed will get a grip on inflation. It’s going to be bumpy. People’s 401(k) plans will fall this year, but we’re unlikely to enter a deeper, prolonged recession at this stage,” Gorman said.
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His optimism was echoed by Alastair Borthwick, Bank of America’s chief financial officer. He said the bank, the second-biggest in the US by assets, “still has very healthy balance sheets and healthy spending” and consumer spending was up 9 percent year-on-year in June so far.
And even with higher spending, Borthwick says retail customers are still hoarding cash. As an example, he said customers who had balances of $1,000 to $2,500 before the pandemic now have about seven times that amount.
“What we’re seeing right now is the credit rating is in great shape,” he said. “I would expect it to swirl around because we are at such a low level. And you would think over time that it would go back towards history, but we don’t see that at the moment.”
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