With inflation at its highest level in decades, the stock market tumbling, and the war in Ukraine driving fears of a prolonged downturn, corporate leaders are talking more about the likelihood of a recession, typically defined as an economic contraction that lasts at least six months.
Last week, JPMorgan Chase chief executive Jamie Dimon predicted an economic “hurricane” stemming from inflation, the Ukraine war, and the Federal Reserve’s steps to hike interest rates and shrink its bond portfolio.
“Right now it’s kind of sunny, things are doing fine. Everyone thinks the Fed can handle this,” Dimon said last Wednesday at a Bernstein Strategic Decisions Conference. “That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy.”
Dimon told investors to brace themselves for market volatility, adding that JPMorgan “is bracing ourselves, and we’re going to be very conservative with our balance sheet.” In early May, Dimon said there was a 66 percent chance the US would enter a recession.
Other Wall Street executives are delivering similar predictions. PNC Financial Services chief executive Bill Demchak said Thursday that while he doesn’t see a “hurricane” on the horizon, he also doesn’t “see any possible outcome other than a recession.” Goldman Sachs COO John Waldron expects “tougher economic times ahead.”
“This is among — if not the most — complex, dynamic environments I’ve ever seen in my career,” said Waldron. “The confluence of the number of shocks to the system to me is unprecedented.”
Tesla CEO Elon Musk joined the chorus, saying in an e-mail to his executives that he has a “super bad feeling” about the economy and that the company would need to cut roughly 10 percent of its workforce.
Carlyle Group CEO Kewsong Lee has a slightly more optimistic outlook on the likelihood of a recession, saying the global private equity firm has its “eyes wide open” as it navigates the threat of recession.
“Right now our stance is more defensive than not — I think appropriately so,” said Lee at the Bernstein conference. “And as we look at this portfolio day-to-day, we don’t see anything which is giving us huge concern. That’s not to say we’re not eyes wide open. Of course we are. But as we sit here today, we’re not seeing any huge problems.”
Wells Fargo CEO Charlie Scharf told a Wall Street Journal conference audience last month that “It’s going to be hard to avoid some kind of recession” as the Federal Reserve attempts to drive down inflation without tipping the economy into a recession. But a strong labor market and high consumer demand could soften the blow of a future downturn.
“Everyone is so strong going into this, [which] should hopefully provide a cushion so that whatever recession there is, if there is one, is short and not all that deep,” said Scharf.
But the combination of stagnant economic growth and high inflation — known as stagflation — seems likely to persist “for at least the next 12 months,” said Simon Baptist, global chief economist at the Economist Intelligence Unit, during an appearance on CNBC. And a Bloomberg survey of economists conducted in May found that the probability of a recession in the next year sits at 30 percent, the highest since 2020.
In a mid-May appearance on CBS’s “Face the Nation,” former Goldman Sachs CEO Lloyd Blankfein said that there is a “very, very high risk” of a recession.
“If I were running a big company, I would be very prepared for it,” said Blankfein. “If I was a consumer, I’d be prepared for it.”
And Chris Rupkey, chief economist at FWDBONDS, a financial markets research company, told the Globe last month that “everything points to an economy that’s near the tipping point.”
“It’ll be a miracle if we can avoid a recession,” he said.
Annie Probert can be reached at email@example.com.