Bank of America CEO sees 'mild recession' in 2023 and is preparing for worse

Bank of America CEO Brian Moynihan said Friday the bank is preparing for a potential recession this year, including the possibility of a sharper downturn where unemployment climbs rapidly. 

"Our baseline scenario contemplates a mild recession," he said during a call with investors. "But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023."

In the case of a more severe recession, Moynihan said the second-largest U.S. bank anticipates the jobless rate will climb to 5.5% in 2023 and remain at 5% or higher through 2024. 

US ECONOMY FACES TURBULENT 2023 AS RECESSION FEARS GROW

A number of Wall Street banks are forecasting a downturn this year, although they remain uncertain about its severity. That includes Goldman Sachs, Wells Fargo and Deutsche Bank. 

Banks are bracing for a recession because persistent and elevated inflation has pushed the Federal Reserve to raise interest rates at the fastest pace since the 1980s, which threatens to curtail consumer and business spending by pushing borrowing costs higher. Policymakers already approved seven straight rate increases in 2022, raising the federal funds rate to a range of 4.25% to 4.5% — the highest level since 2007 – and forecast a peak rate of about 5%. 

Fed Chairman Jerome Powell has said the central bank has more work to do regarding its inflation-fighting campaign, despite early signs that prices are beginning to cool off. 

"The inflation data in October and November show a welcome reduction," Powell told reporters in December at the conclusion of the Fed's policy-setting meeting. "But it will take substantially more evidence to give confidence that inflation is on a sustained downward path."

FED'S PREFERRED INFLATION GAUGE COOLED IN NOVEMBER, BUT PRICES REMAINED STUBBORNLY HIGH

Officials also indicated that economic growth will slow sharply in 2023 and that unemployment will march substantially higher to a rate of 4.6% as rate hikes bring the U.S. to the brink of a recession. The Fed expects the jobless rate to remain elevated in 2024 and 2025 as steeper rates continue to take their toll on the economy. 

Still, Powell has pushed back against the certainty of a recession, suggesting that lower inflation prints could boost the odds of a soft landing – the sweet spot between curbing inflation without flatlining growth. 

"To the extent we need to keep rates higher and keep them there for longer and inflation moves up higher and higher, I think that narrows the runway," Powell told reporters. "But lower inflation readings, if they persist, in time could certainly make it more possible. I don't think anyone knows whether we're going to have a recession or not, and if we do, whether it's going to be a deep one or not. It's not knowable."

BANK EARNINGS BEAT EXPECTATIONS DESPITE ‘HEADWINDS’, JPMORGAN CEO ‘PREPARED FOR WHATEVER HAPPENS’

Bank of America said fourth quarter revenue rose 11% to $24.5 billion. Net income was flat, coming in at $7.1 billion compared to $7 billion in the prior year quarter.

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Net income in the Consumer Banking unit grew 15% but declined 2% in Global Wealth and Investment Management.