Weekly Business Insights from Top Ten Business Magazines | Week 288 | Shaping Section | 4

Extractive summaries of and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 288 | March 17-23, 2023

‘Already past the point of no return’: JPMorgan says the U.S. is probably headed for a recession as economic ‘engines are about to turn off’

By Tristan Bove | Fortune Magazine | March 21, 2023

Listen to the Extractive Summary of the Article

A series of banking crises this month headlined by the failure of Silicon Valley Bank has forced analysts from multiple banks, including JPMorgan Chase, to rewrite their recession forecasts from scratch, as months of small victories against inflation and a relatively strong economy were potentially swept away in under two weeks.

Even if the government and the private sector are able to successfully contain contagion from the bank collapses spreading through the economy, the failures may still lead to lasting damage for the U.S. financial system. Some banks are teetering on the edge in Europe and the U.S., while jittery markets and the promise of stricter regulation could lead to a credit crunch—a steep decline in banks’ willingness to lend caused by a lack of funds.

It adds up to an impossible choice the Federal Reserve has to make when officials meet on March 22: Slow down the pace of interest rate hikes or plow ahead to bring down resurgent inflation and risk amplifying damage to the economy. But as far as the Fed is concerned, hopes of engineering a soft landing for the economy and avoiding a recession may already be in the rearview mirror.

It is still unclear how far contagion from SVB will spread. New York–based Signature Bank failed days after SVB, requiring sweeping government measures to restore confidence that account holders in both banks would be made whole, but other small-sized and regional banks remain in precarious positions. San Francisco–based First Republic remains at high risk, although larger U.S. banks banded together last week to provide a $30 billion deposit to prop up its finances. 

The analysts referred to current challenges as a possible “Minsky moment,” named after the American economist Hyman Minsky, who famously predicted that extended bull markets naturally end in epic and monumental collapses. A Minsky moment happens when the inevitable check comes due and the house of cards finally falls down. JPMorgan analysts wrote our Minsky moment is nearing as the past few weeks alone have seen a number of economic and geopolitical threats to the world, including banking crises on both sides of the Atlantic.  JPMorgan isn’t the only major bank to have downgraded its economic forecasts in recent weeks.

Investors and historians have warned for years that an extended bull market in the U.S. since 2009 would inevitably lead to an economic overcorrection.

3 key takeaways from the article

1. A series of banking crises this month headlined by the failure of Silicon Valley Bank has forced analysts from multiple banks, including JPMorgan Chase, to rewrite their recession forecasts from scratch, as months of small victories against inflation and a relatively strong economy were potentially swept away in under two weeks.
2. Even if the government and the private sector are able to successfully contain contagion from the bank collapses spreading through the economy, the failures may still lead to lasting damage for the U.S. financial system.
3. Investors and historians have warned for years that an extended bull market in the U.S. since 2009 would inevitably lead to an economic overcorrection.

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Topics:  Financial Markets, Recession, Global Economy