Get Ready: ‘Recession Very Likely’ According to BofA’s 2023 Market Outlook – SPDR S&P 500 (ARCA: SPY)

bank of america released its 2023 Global Economic Outlook report on Sunday, and the firm’s economists are forecasting recessions in the US, Europe and the UK in the coming year.

According to economist Ethan Harris, the Federal Reserve will be unable to bring inflation under control without pushing the US economy into recession.

Inflation will eventually subside, but rates will need to rise and stay high for a while before the Fed can declare victory, he explained.

Related Link: What’s Next for the Stock Market After Hawkish Fed Commentary This Week?

Interest Rate Outlook: Harris followed with two more 0.5% Fed interest rate hikes in December and February, and another hike of 0.25% in March, bringing the terminal fed funds rate range to between 5% and 5.15%. However, he does not expect the Fed to start cutting interest rates again until December 2023 and return to the fed funds target range of between 2.75% and 3% by the end of 2024.

“With a weak labor market, [U.S. unemployment rate] From a peak of around 5.5% in 1Q 24, this should allow core PCE inflation to slow to 3.1% and 2.2% y/y by end-23 and end-24, respectively,” Harris said.

GDP Growth Estimates: The one exception to a weak global economy in 2023 could be China. Harris said he expects the COVID-19 delayed reopening in China to slow GDP growth from 3% in 2022 to 5.5% in 2023.

Related link: ‘Housing down more’: Homebuilder sentiment falls to lowest level in 10 years

Unfortunately for US investors, Harris cut its full-year 2022 US GDP growth forecast to 1% from 4% and its 2022 global GDP growth forecast to 3.3% from 4.3%. Looking ahead, Harris forecasts that US GDP will decline by 0.4% in 2023, down from his previous forecast of 2.2% growth.

Benzinga’s take: A shrinking economy isn’t typically bullish for the SPDR S&P 500 ETF Trust Detective For obvious reasons. If the US spends the first three quarters of 2023 in recession, it is unlikely that the S&P 500 will make new highs anytime soon.

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