One of the world’s wealthiest individuals, Jeff Bezos, has warned that the economy is signaling a coming storm.
Negative GDP growth, high inflation, and steep interest rate hikes continue to characterize the current environment, instilling little optimism in the former Amazon CEO. Earlier this week, he explicitly delivered his glum outlook on social media, writing, “the probabilities in this economy tell you to batten down the hatches.”
The U.S. has experienced two consecutive quarters of economic contraction, which is often considered the definition of a recession in many countries. However, this is not the case in the U.S., where a group of economists is responsible for declaring recessionary periods using a variety of indicators.
As the November elections approach, the Biden administration has stressed the need to slow the rapid growth in the economy. The Federal Reserve has been aggressively acting this year, implementing multiple rate hikes. Despite the moves, the September rate of inflation was higher than expected at 8.2% instead of 8.1%.
With elevated inflation levels persisting, the Fed will likely continue its aggressive rate tightening next month to slow the economy.
According to President Biden, we are not in a recession, nor does he think there will be a recession. In the event that there will be, “it’ll be a very slight recession,” he said during an interview last week.
The U.S. economy continues to experience impressive levels of job creation, low unemployment, and relatively sound household finances. While these are positive attributes on the surface, it worries economists when they grow too fast. The central bank’s latest tightening was expected to slow these metrics more than it did.
Critically, inflation remains well above the targeted goal of 2% annually, suggesting the Fed may continue pushing rates higher. However, the risk of aggressive Fed tightening is that it could send the economy into a true recession, as defined by U.S. economists.
After enjoying impressive growth during the pandemic, the real estate sector is one area of the economy showing clear signs of slowing. The housing sector, being sensitive to changes in interest rates, prompts lenders to adjust the rate they ultimately charge borrowers. Now, with mortgage rates around 7% — the highest in two decades — banks and property firms are beginning to reduce headcount.
David Solomon, CEO of one of the largest investment banks in the world, Goldman Sachs, recently told the BBC that CEOs are showing great hesitation in their recent ventures and are looking for more confidence in the economy before making decisions.
He added, “We’re tightening economic conditions very, very quickly. And when you tighten economic conditions it has an impact on these things.”
Bezos and Solomon are not the only former or current U.S. executives raising the alarm bell. Jamie Dimon, CEO of JP Morgan, recently warned of a coming “hurricane” that will wipe out consumer savings by the middle of 2023.
Fed Chairman Jerome Powell did not pull punches when he recently cautioned, “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t.”
