Top Wall Street CEOs amplify recession warnings as bets of dismal 2023 swell

A chorus of Wall Street CEOs sounding the alarm over the state of the U.S. economy grew louder this week, as executives ratcheted up their warnings of a possible recession in 2023. 

Relentless inflation, combined with the most hawkish Federal Reserve in decades, have raised the specter of a downturn next year, according to some of the most prominent CEOs in the country. 

JPMorgan Chase CEO Jamie Dimon, Bank of America CEO Brian Moynihan and Goldman Sachs CEO David Solomon revived their gloomy predictions of a downturn in 2023 as they struck a pessimistic tone about the health of the economy.

"You have to assume that we have some bumpy times ahead," Solomon said Tuesday during an interview on Bloomberg Television. "You have to be a little more cautious with your financial resources, with your sizing and footprint of the organization."

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That can mean an increased focus on costs and a slowdown in hiring, which Goldman has already undertaken.

"That might also come from pruning in certain areas," Solomon added.

Dimon, the chief of the largest bank in the U.S., echoed that sentiment during an interview with CNBC on Tuesday. While he noted that businesses are still in good shape and consumer spending remains strong – households are hoarding roughly $1.5 trillion in excess savings from pandemic relief programs – that may not last long. 

"Inflation is eroding everything I just said, and that $1.5 trillion will run out sometime mid-year next year," Dimon said. "When you are looking that forward, those things very well may derail the economy and cause this mild to severe recession that people are worried about."

The economic outlook has clouded further as a result of the Fed's interest rate-hike campaign, the most aggressive in decades as policymakers struggle to wrestle under control inflation that is still running near a 40-year high.

In a troubling development, however, the Fed's rate hikes have thus far failed to tame inflation: The government reported last month that the consumer price index soared 7.7% in October from the previous year, well above the Fed's 2% target. That indicates the Fed will have to continue charting its aggressive course, raising the odds that it will crush consumer demand and cause unemployment to rise.

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Policymakers could ultimately lift interest rates as high as 5% next year, Dimon said, and even "that may not be sufficient." 

Dimon had previously warned the U.S. may be headed for a "hurricane" as a result of higher interest rates, inflation and the war in Ukraine; however, he declined to say on Tuesday whether he believed a looming downturn would be mild or severe.

"What I said about a hurricane, I said those storm clouds could mitigate," he said. "It could be a hurricane. We simply don't know."

History indicates the business titans could be right in predicting a downturn. Recent research from Alan Blinder, a former Federal Reserve board vice-chairman and a Princeton economist, identified 11 tightening cycles since 1965, of which eight were followed by recessions. 

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Still, that does not mean a severe recession is guaranteed. There were five instances of either very mild recessions in which GDP fell less than 1% or there was no economic decline at all. 

Bank of America CEO Brian Moynihan said during an interview with FOX Business' Neil Cavuto on Tuesday that he predicts the U.S. could slide into a recession next year, though he anticipates it could be mild.

"We're going to have a shallow recession," he said. "At the end, we have to get inflation under control, and that's what the Fed is trying to do."