American Warnings of an Unprecedented Economic Hurricane

American companies and investment banks increased the tone of their warnings about the challenges facing the economy of the US and their impact on investors and the economies of other countries.

Over the past week, a group of CEOs from Jamie Dimon and Elon Musk to Gary Friedman have issued several warnings to investors in order to be wary of an impending economic setback, Bloomberg reported in its June 03, 2022 report.

After several months of robust consumer spending and supply chain improvements, some well-known corporate leaders are sounding the alarm further on the sharpest inflation in decades and expected increases in the interest rate.

A Bloomberg survey estimated that there is a 30% chance of a recession in the next 12 months, up from 15% in March.

 

Unprecedented Inflation

It was not surprising what JPMorgan Chairman Jamie Dimon said on June 01, 2022, about the challenges facing the US economy, which he described as a bad enough hurricane, despite his statement last month that the storm clouds surrounding the economy had dissipated.

Dimon, who is also the CEO of the largest bank in the US, added that he was also concerned about high-interest rates and the repercussions of the conflict in Ukraine.

He expected that crude oil prices would witness an unprecedented rise that could reach $150, and could reach $175 per barrel.

Dimon also warned investors against entering the US into a fatal economic recession in the next stage due to the size of the financial inflation, which reached the limits of 9% last May of this year.

Most study centers in the US expect this inflation to reach more than 15% in the near future if no practical measures are taken to deter it.

It is noteworthy that Dimon's statements came a day after US President Joe Biden met with Federal Reserve Chairman Jerome Powell, to discuss inflation, which is hovering around its highest level in 40 years.

The Fed is under pressure to take decisive action to reduce an inflation rate to more than three times its target of two percent, which has raised the cost of living so high for Americans.

Uncertainty over US central bank policy, the war in Ukraine, and prolonged supply chain disruptions due to COVID-19, as well as rising Treasury yields, have shocked global stock markets, as the Standard & Poor's index fell 13.3% since the beginning of the year.

In turn, Goldman Sachs Chairman John Waldron took the same cautionary tone the day after Dimon's statements, describing the current economic climate as the most shocking and complex phase of his entire working life.

“We have a long way to go in raising interest rates in order to fight inflation. I think you just have to prepare for anything from now,” Gary Friedman, Chairman of furniture retailer RH, said in a statement on June 02, 2022.

There was also news that billionaire Elon Musk told his Tesla employees last week that he felt so bad about the economy that he would need to cut the electric car maker's workforce by 10%.

This cautionary tone contrasts with the jobs report published on June 03, 2022, which showed larger-than-expected increases in the payroll.

 

Great Recession

The US could hit a recession by this year or early 2023, according to Hayman Capital chief investment officer Kyle Bass.

While economic analysts are still underestimating the possibility of a recession during the next year 2023, even despite the high odds that indicate that.

Jane Fraser, CEO of CitiGroup, indicated on June 03, 2022, that “a recession appears more likely in Europe than in the US due to energy costs, but it will not be easy for both of them to avoid.”

“American consumers are more powerful thanks to the abundance of money in their wallets, but despite this, factors such as interest rates, the Russian invasion of Ukraine, and the threat of recession are now on top of the scene,” Fraser added.

In contrast, Larry Fink, CEO of BlackRock, predicted high inflation would continue for several years; while Bill Demchak, chief executive of BNC Financial Services, explained that the only expected outcome is a recession.

It is noteworthy that the recession usually causes the creation of a state of uncertainty, cuts costs, and layoffs, and often leads to political unrest.

On the other hand, Standard & Poor's Global suspended the issuance of its annual guidance last week, citing deteriorating economic conditions and unusually weak debt issuance volumes.

However, some bank executives are still counting on continued strength in US consumer spending.

On her part, Holly O'Neill, President of Retail Banking for Bank of America, saw that there is no sign yet that the main pillar of the economy is beginning to falter.

It is noteworthy that the Fed raised interest rates by 50 basis points on May 4, the largest increase since 2000; at the time, the Federal Reserve Chairman indicated he was on track to make similar increases at its June and July meetings.

On June 01, 2022, David Malpass, President of the World Bank, indicated that “the Russian invasion of Ukraine and its impact on food and energy prices, as well as the availability of fertilizers, could trigger a global recession.”

He added at a seminar hosted by the American Chamber of Commerce that Europe, China, and the US are experiencing a slowdown in growth, without providing any details on when a global recession might start.

The World Bank had already cut its global growth forecast for 2022 by half a percentage point to 3.2% from 4.1% due to the fallout from the Russian invasion of Ukraine.

 

Impending Economic Crisis

The Great Recession in the US between December 2007 and June 2009 resulted in millions of Americans losing their homes and livelihoods.

It was the worst economic downturn since the Great Depression of the 1930s, and it left many young university dropouts with little hope of finding a good job, as the job market took nearly a decade to fully recover.

For a large percentage of Americans, the crash of 2008 is the only real recession they've ever experienced, if the short-term downturn caused by the coronavirus in 2020 is not factored in.

As a result, when Americans see dire predictions of an impending economic crisis or a major recession on the part of billionaires and investment banks, most tend to panic immediately.

According to the National Bureau of Economic Research (NBER), the US has experienced 34 recessions since 1857, ranging in duration from two months (February to April 2020) to more than five years (October 1873 to March 1879), with an average recession of about 17 a month.

On his part, the researcher in economic affairs Dr. Mahmoud Jebaee said in a statement to Al-Estiklal: “There is a big crisis coming. The most prominent of which will be the rise in the cost of living, which will inevitably affect primarily developing and poor countries. In addition, food security will be threatened in many countries of the world.”

Regarding the direct causes of the hurricane that threatens the economy of the US and the world, Dr. Jebaee indicated that “the Russian-Ukrainian war and the mutual economic sanctions between Western countries on the one hand and Russia, on the other hand, led to a rise in oil and gas prices globally, and contributed to a significant increase in the rate of inflation in the US.”

“The inflation rate in the US has taken a very significant upward trend due to the huge monetary masses that were injected into the markets to address the repercussions of the global Coronavirus crisis. According to estimates, the US printed more than a trillion dollars to meet its fiscal deficit during that period,” he added.

“All of the above contributed to the rise in inflation rates to the level of 4%, which is the highest rate in decades, and then rose to the level of 10% during the past months. It is expected to rise further in light of the decline in US domestic commodity production, which also affects the various industrial countries interconnected with them in various different areas of production,” the researcher said.

Dr. Jebaee called on developing and poor countries to exercise caution, starting now, and to work seriously to develop local productions, with the aim of mitigating the impact of the economic crisis on them in the near future.