Banks are bracing for a recession because persistent and elevated inflation has pushed the Federal Reserve to raise interest rates at the fastest since the 1980s. This is threatening to curb consumer and business spending by moving higher borrowing costs.
Policymakers approved seven straight rate increases in 2022, raising the federal funds rate to a range of 4.25 percent to 4.5 percent — the highest level since 2007 – and forecasting a peak rate of about 5 percent. Bank of America Vice Chairman Keith Banks predicted Q4 earnings would come in lower than expected, marking the start of a slowing economy.
“We think as the economy slows, revenue is going to slow, and as a result, you’re going to start to have some margin pressure and negative operating leverage, none of which is good for earnings,” Banks said.
According to the market expert, margin trading will first get squeezed and cause operating leverage “to flip over.”
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