On Tuesday, executives said that the biggest banks in the United States are preparing for the economy to get worse in the next year, as consumer demand is under pressure due to inflation.
Jamie Dimon, the chief executive of JPMorgan Chase & Co, said that companies and consumers are currently doing well.
But, he was also quick to add that they do not expect this to last very long because inflation would erode the spending power of consumers and the economy will slow down.
He said that this would only derail the economy further and eventually result in the mild to a hard recession that has people so concerned.
The predictions
Dimon said that there is about $1.5 trillion that consumers have in excess due to savings from the stimulus programs during the COVID-19 pandemic, but these would eventually run out halfway through the next year.
He also added that the Federal Reserve would continue to increase interest rates until they hit 5%, after which they would hit pause.
But, he asserted that this would not be enough to reduce inflation. Last month, there had been a hike in the interest rate of 75 basis points in the US central bank for the fourth time.
This pushed up the benchmark interest rate to 3.75% to 4%, but the Fed had also signaled that it might reduce its rate hike in the next meeting.
Banking shares
There was a sharp decline in the shares of major banks on Tuesday, as some of the top bankers shed light on the risks associated with the economy.
There was a 4% drop in Bank of America’s shares, while there was a more than 2% drop in shares of both Morgan Stanley and Goldman Sachs Group Inc.
There was also a 1% drop in shares of Citigroup Inc. Brian Moynihan, the CEO of Bank of America, informed investors that their research indicated that the first half of next year would have negative growth.
Speaking at a financial conference conducted by Goldman Sachs, the chief executive also added that they expected this negative growth to be on the ‘mild’ side.
Additional details
The investment-banking fee of the lender is likely to see a decline of somewhere between 55% and 60% in the fourth quarter of 2022, as compared to the same quarter a year earlier.
However, the CEO also said that they expect a 10% to 15% increase in trading revenue. David Soloman, the chief executive of Goldman Sachs, said that there was a slowdown in economic growth.
He stated that their clients had become very cautious, but he said that the job market for the banking sector was still tight and there was tough competition for talent.
But, there are banks that are laying off workers. According to a source familiar with the matter, there has been a 2% reduction in the workforce of Morgan Stanley.
Almost 1,600 positions have been affected due to these job cuts and both Citigroup and Goldman have also reduced their workforce.
In other Wall Street news, Gary Shedlin, the chief financial officer of BlackRock Inc., the world’s largest asset manager, announced that they were implementing a hiring freeze.
The CFO said that they would only be hiring for critical roles because they were trying to be a bit more prudent.
