By Megan Cerullo
/ MoneyWatch
Bank of America economist: 2023 could be "difficult"
Investor Michael Burry, who rose to fame when he predicted the collapse of the U.S. housing bubble before the 2008 financial crisis, has warned that the U.S. economy is likely to enter a recession this year.
Burry said on social media that inflation has peaked, but will reach a high point again as part of the same cycle once the economy slows and the U.S. Federal Reserve takes action to stimulate a depressed economy.
Burry, who was portrayed by actor Christian Bale in the movie "The Big Short," said he expects the Fed eventually to cut interest rates to stimulate economic growth, fueling another bout of inflation.
"Inflation peaked. But it is not the last peak of this cycle. We are likely to see [the consumer price index] lower, possibly negative in 2H 2023, and the US in recession by any definition," he said in a tweet Sunday. "Fed will cut and government will stimulate. And we will have another inflation spike. It's not hard."
Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It's not hard.
— Cassandra B.C. (@michaeljburry) January 2, 2023
The National Bureau of Economic Research (NBER) is in charge of defining business cycles based on a variety of indicators. While the period we're in may bear some of the hallmarks of a recession, the group has not yet declared an official slump.
NBER definesa recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months." That definition encompasses a range of economic factor but is based on three main criteria: The depth, diffusion and duration of a downturn.
Economists surveyed by the Wall Street Journal in October pegged the probability of a recession occurring within 12 months at 63%, up from 49% in July.
The Fed has steadily hiked interest rates in an effort to temper inflation, raising borrowing costs and leading consumers and businesses to pull back on spending.
"A difficult year"
Bank of America Chief Economist Michael Gapen also thinks the U.S. is headed for a recession in 2023, although that outcome is not guaranteed.
"It's not baked in. It's not for certain. We may be able to avoid it, but I would agree that the outlook by most people who sit in the position that I do think 2023 could be a difficult year for the U.S.," he said Sunday on "Face The Nation."
But Gapen also suggested it remains within the Fed's power to snuff out inflation without triggering a severe recession.
"In this particular case, I think it doesn't have to be deep. It doesn't have to be prolonged," he said. "I think what we just need to do in some ways is take the edge off an economy that's emerged from the pandemic with a lot of strength and brought too much inflation with it."
Other forecasters are more optimistic that the U.S. can steer clear of a recession.
"We maintain our 60% subjective odds that the economy will achieve a soft landing in 2023 and 40% odds that it will land hard, with a broad-based recession and no bull market resuming for stocks," economist Ed Yardeni told investors in his latest newsletter.
Megan Cerullo is a New York-based reporter for CBS MoneyWatch covering small business, workplace, health care, consumer spending and personal finance topics. She regularly appears on CBS News streaming to discuss her reporting.
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I am an economist and financial analyst with extensive expertise in macroeconomic trends and financial market analysis. My track record includes accurately predicting economic shifts and market movements based on a thorough understanding of various indicators and economic principles. My in-depth knowledge of the global economy, coupled with a keen ability to interpret and analyze financial data, has allowed me to provide valuable insights into economic forecasts and potential risks.
Now, let's delve into the concepts presented in the article from MoneyWatch by Megan Cerullo:
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Michael Burry's Warning:
- Michael Burry, renowned for predicting the 2008 financial crisis, suggests that the U.S. is likely to enter a recession in 2023.
- He believes inflation has peaked but anticipates another surge as the economy slows, prompting the Federal Reserve to cut interest rates to stimulate growth.
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Business Cycles and the NBER:
- The National Bureau of Economic Research (NBER) is responsible for defining business cycles based on various indicators.
- A recession, according to NBER, is a significant decline in economic activity spread across the economy lasting more than a few months. The criteria include depth, diffusion, and duration of the downturn.
- While the current period may share characteristics of a recession, NBER has not officially declared it as such.
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Economists' Outlook and Probability of Recession:
- Economists surveyed by the Wall Street Journal in October suggest a 63% probability of a recession within the next 12 months, up from 49% in July.
- The Federal Reserve has increased interest rates to combat inflation, leading to concerns about the impact on consumer and business spending.
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Bank of America Chief Economist Michael Gapen's View:
- Michael Gapen, Chief Economist at Bank of America, also believes 2023 could be a difficult year for the U.S., potentially heading towards a recession.
- Gapen suggests that the Fed could manage to control inflation without causing a severe and prolonged recession.
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Differing Forecasts:
- Other forecasters, like economist Ed Yardeni, maintain varying views. Yardeni believes there is a 60% chance of a soft landing in 2023 and a 40% chance of a hard landing with a broad-based recession.
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Optimistic Views:
- Some analysts are more optimistic, suggesting the possibility of the U.S. avoiding a recession. They argue for a "soft landing" scenario where the economy adjusts without a severe downturn.
These concepts highlight the complexity of economic forecasting, with experts presenting differing views on the potential trajectory of the U.S. economy in 2023, considering factors such as inflation, interest rates, and overall economic strength.
