Bank of America predicts that despite the fact that markets and the economy look to be holding up, three things are likely to go wrong that will help drop the US in a recession this year.
In a report released on Friday, the bank’s economics team claimed that recent statistics have surprised to the upside, highlighting favorable increases in home sales and vehicle sales and manufacturing.
Payments on Student Loans Will Resume
After the Supreme Court struck down President Joe Biden’s plan to cancel student debt last month, borrowers have been getting ready to start making payments again in the early fall.
Resuming payments on student loans after a three-year break is likely to be a burden for borrowers, BofA warned, which may significantly boost the default rate.
That could have repercussions throughout the debt market, including in sectors like credit card debt where a growing proportion of debtors are already in default.
Squeeze on Credit
Financial institutions are less likely to lend after the failure of many regional bankers this year in response to aggressive Fed tightening, which might lead to problems in the credit markets.
According to BofA’s citation of the Senior Loan Officer Opinion Survey from April, loan officers have warned that credit conditions will continue to tighten for the rest of the year and that consumer and commercial loan growth has slowed across most categories.
GDP Growth is Slowing
Despite vigorous Fed tightening, the labor market has remained strong, but the expansion of employment has been limited to low-paying service sector positions.
First-quarter GDP growth in the United States was 2.0% after adjustments. The Philadelphia Fed surveyed a group of economists, and they project GDP growth of 1.3% for the year.
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Source: INSIDER