For over a year, CEOs, economists, analysts and the like have been warning of an economic downturn. They say a U.S. recession is coming in the second half of 2023. That time frame looms on the visible horizon.
Granted, 2022 wasn't an economic year to celebrate. Inflation hit a 40-year peak, gasoline prices soared, consumer sentiment plunged and markets fell by 20 percent. Still, the United States managed to avoid a recession and U.S. car dealers experienced strong profitability, although returning to normal is fraught with unknowns.
Back in January, Federal Reserve Bank of Richmond President Tom Barkin said, "This has been the most predicted potential recession in memory."
JPMorgan CEO Jamie Dimon has warned of serious economic danger lurking just over the horizon. Given the risks that may lie ahead, he told Bloomberg, "I would take a mild recession happily."
At the Sohn Investment Conference, billionaire investor Stan Druckenmiller didn't mince words either. A hard landing is coming, he cautioned, and "it's just naive not to be open-minded to something really bad happening."
Bloomberg reported an interest spread between the two-year and the 10-year Treasury had reached 86 basis points, the widest since the 1980s, resulting in a notable yield curve inversion. Inverted yield curves such as this have predicted the last seven recessions, and the yield curve has been inverted since July 2022. The current inversion is deeper than it was before both the 2008 financial crisis and the 1990 recession. The inverted yield curve has been a historically strong predictor of recessions, a leading indicator with a robust track record of reliability.
Many voices are predicting a U.S. recession. The Fed's own experts predicted in March that "the potential economic effects of the recent banking-sector developments" would lead to "a mild recession starting later this year." They have raised rates higher and more quickly than they have in decades, and some say that the ongoing U.S. regional banking crisis is an early warning sign of stress on the system. Bank failures have made borrowing more difficult, which can curb spending and weigh heavily on economic activity.