KazPost

Kazakhstan News
Saturday, Mar 25, 2023

'The Fed has to do the dirty work' and induce a US recession that's deeper than Europe's as the economy is clearly overheating, BofA says

'The Fed has to do the dirty work' and induce a US recession that's deeper than Europe's as the economy is clearly overheating, BofA says

"If the Fed wants to get labor cost inflation under control in a timely manner, we think it needs to engineer about a 2% rise in the unemployment rate."
The Federal Reserve faces the difficult task of cooling down a searing-hot labor market, and aggressive rate hikes will ultimately tip the US economy into a deeper recession than what Europe will likely see, according to Bank of America. 

Because Europe had a less rapid recovery from the pandemic compared to the US, Europe's GDP has less room to fall, BofA said, adding that the eurozone still hasn't fully recovered from the recession with hours worked far below pre-pandemic levels and wage growth only inching higher.

"Europe does not need to cool off its labor market to get inflation down," analysts wrote in a note Friday. "By contrast, the Fed has to do the dirty work of bringing labor demand down and in line with labor supply. Adding to the challenge is the fact that pent-up demand for labor in the US is making it very hard to cool off the labor market. So the Fed has to deal with both the risk of second-round effects and the first-round effect of an overheating labor market."

The strength of the US labor market was on display Friday, when the Labor Department reported nonfarm payrolls increased by 261,000 in October, above expectations, while unemployment rose to 3.7%, above the expected 3.5%. 

BofA analysts said the US economy is "clearly overheating," particularly the labor market, as robust wage growth shows few signs of easing.
The jobs data opens the door for the Fed to stay aggressive with its rate hikes, even after it made its fourth consecutive 75-basis-point increase on Wednesday. The fed fund rate now sits at 3.75% to 4%.

BofA now sees the Fed eventually hiking the benchmark rate to 5.25%, up from its previous prediction for 4.75% to 5%, while the European Central Bank's terminal rate will be 2.5%. 

"If the Fed wants to get labor cost inflation under control in a timely manner, we think it needs to engineer about a 2% rise in the unemployment rate," the note said.

As a result, analysts see the US economy shrinking at an annualized pace of 1.5% in the first three quarters of next year. The eurozone is seen contracting by 1.2% and 1.6% over the two winter quarters, then rebounding to trend-like growth of roughly 1% over the remainder of next year.

To be sure, Europe faces significant downside risks that could change the outlook, such as the prospect of further natural gas supply cuts from Russia as well as uncertainty from upcoming sanctions on Russian oil.  

"We can't rule out additional shocks to the energy market, due to additional supply disruptions," BofA said. "Europe is vulnerable to confidence shocks if the war in Ukraine escalates. And Europe is quite vulnerable to a colder-than-normal winter."
Newsletter

Related Articles

KazPost
Close
0:00
0:00
Powell: Silicon Valley Bank was an 'outlier'
Donald Trump arrested – Twitter goes wild with doctored pictures
NYPD is setting up barricades outside Manhattan Criminal Court ahead of Trump arrest.
Credit Suisse's Scandalous History Resulted in an Obvious Collapse - It's time for regulators who fail to do their job to be held accountable and serve as an example by being behind bars.
Paris Rioting vs Macron anti democratic law
'Sexual Fantasy' Assignment At US School Outrages Parents
Orbán Viktor: the restructuring of the power relations in the whole of Europe is taking place
Credit Suisse to borrow $54 billion from Swiss central bank
Russian Hackers Preparing New Cyber Assault Against Ukraine
"Will Fly Wherever International Law Allows": US Warns Russia After Drone Incident
China is calling out the US, UK, and Australia on their submarine pact, claiming they are going further down a dangerous road
A brief banking situation report
We are witnessing widespread bank fails and the president just gave a 5 min speech then walked off camera.
Donald Trump's asked by Tucker Carlson question on if the U.S. should support regime change in Russia?.
Elon Musk Is Planning To Build A Town In Texas For His Employees
The Silicon Valley Bank’s collapse effect is spreading around the world, affecting startup companies across the globe
City officials in Berlin announced on Thursday that all swimmers at public pools will soon be allowed to swim topless
Fitness scam
Market Chaos as USDC Loses Peg to USD after $3.3 Billion Reserves Held by Silicon Valley Bank Closed.
Banking regulators close SVB, the largest bank failure since the financial crisis
Silicon Valley Bank: Struggles Threaten Tech Startup Ecosystem"
The unelected UK Prime Minister Rishi Sunak, an immigrant himself, defends new controversial crackdown on illegal migration
Man’s penis amputated by mistake after he’s wrongly diagnosed with a tumour
In a major snub to Downing Street's Silicon Valley dreams, UK chip giant Arm has dealt a serious blow to the government's economic strategy by opting for a US listing
It's the question on everyone's lips: could a four-day workweek be the future of employment?
Is Gold the Ultimate Safe Haven Asset in Times of Uncertainty?
Corruption and Influence Buying Uncovered in International Mainstream Media: Investigation Reveals Growing Disinformation Mercenaries
European MP Clare Daly condemns US attack on Nord Stream
Kamala Harris: "The United States has formally determined that Russia has committed crimes against humanity."
US Joins 15 NATO Nations in Largest Space Data Collection Initiative in History
White House: No ETs over the United States
U.S. Jet Shoots Down Flying Object Over Canada
Nord Stream terror attack: David Sacks breaks down Sy Hersh's story
Being a Tiktoker might be expensive…
SpaceX, the private space exploration company, made a significant breakthrough in their mission to reach space.
China's top tech firms, including Alibaba, Tencent, Baidu, NetEase, and JD.com, are developing their own versions of Open AI's AI-powered chatbot, ChatGPT
This shocking picture, showing how terrible is the results of the earthquake in Turkey
The desk of King Carlos Alberto of Sardinia has many secret compartments
Today's news from Britain - 9th February 2023
The five largest oil companies in the West generated combined profits of nearly $200 billion in 2022, which has led to increased calls for governments to impose tougher windfall taxes
2 earthquakes in Turkey killed over 2,300 people
Turkish photographer Ugur Gallenkus portrays two different worlds within a single image. Brilliant work
Charlie Munger, calls for a ban on cryptocurrencies in the US, following China's lead
EU found a way to use frozen Russian funds
First generation unopened iPhone set to fetch more than $50,000 at auction.
WARNING GRAPHIC CONTENT - US Memphis Police murdering innocent Tyre Nichols
Almost 30% of professionals say they've tried ChatGPT at work
Interpol seeks woman who ran elaborate exam cheating scam in Singapore
What is ChatGPT?
Bill Gates is ‘very optimistic’ about the future: ‘Better to be born 20 years from now...than any time in the past’
×