The US economy is still under threat from rising oil costs, the dollar, and the Federal Reserve, the Bank of America said.
According to strategists led by Michael Hartnett, there is still a possibility of a “hard landing,” which refers to a dramatic decline in economic activity following a period of boom.
Higher oil prices, the dollar’s recent gain, and the prospect of additional interest-rate hikes all pose a risk to stock prices in September and October, raising the “hard landing likelihood in the next six months,” according to “business insider.”
The strategists’ pessimistic assessment contrasts with that of many on Wall Street, with major banks and even the Fed itself abandoning recession forecasts in recent weeks.
Goldman Sachs’ chief economist Jan Hatzius said on Tuesday that the odds of the US experiencing a significant slowdown in growth are now 1-in-7, citing decreasing inflation and job-market resiliency.
The prevailing assessment, according to Hartnett’s team, is that there is a 20% likelihood of a hard landing, yet the trio of oil, the currency, and the Fed each still constitute an economic danger.
Both the Brent and West Texas Intermediate crude benchmarks touched 10-month highs this week as Russia and Saudi Arabia pushed through with long-promised production curbs, raising concerns that inflation may rise again.
Meanwhile, an indicator of dollar strength touched a six-month high on Thursday. While a rising greenback is frequently considered a sign of economic health, it also implies that American corporations conducting the majority of their business abroad wind up making lesser profits.
Finally, Bank of America strategists expressed concern about “higher-for-longer” interest rates in the face of indicators that the Fed may not be finished tightening just yet.
