Small bank executives almost agree recession is coming

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Small bank executives overwhelmingly believe that the US economy will fall into recession by 2023.

In an online survey conducted June 21-30, 96% of community bank executives said they expected an economic decline by the end of this year or next year. Thoughts about when a recession will hit were evenly split across the group, with 48% of bankers saying they believe it will happen this year and 48% predicting it will be an event in 2023.

Among respondents who think a recession is coming, 52% say the driving force will be an overcorrection from the Federal Reserve. The central bank is trying to tackle inflation, which rose to 8.6% in May, by raising borrowing rates, but some say the increases are too big and coming too quickly.

The near-universal agreement that a recession is looming means “bankers believe the economy is in real trouble,” said Paul Weinstein, senior adviser to deposit services provider IntraFi Network, which conducted the survey. CEOs, presidents, CFOs of community banks. executives and chief executives.

“There seems to be a lot of concern that the Fed isn’t handling this as best it could, that it came a little too late and might be moving a little too fast,” Weinstein said Tuesday.

In recent months, bankers have grown increasingly pessimistic about the outlook for the economy, in part because they don’t believe the Fed will be able to keep the economy out of a recession. In June, JPMorgan Chase CEO Jamie Dimon intended an economic “hurricane”.

“Right now it’s pretty sunny. Things are going well. Everyone thinks the Fed can handle this,” Dimon told a conference. “[But] this hurricane is right over there on the road coming our way. We just don’t know if it’s Minor or Superstorm Sandy or [Hurricane] Andrew.

The central bank raised interest rates by 1.5 percentage points since the start of the year, most recently in June when rates rose 75 basis points, the largest single increase since 1994.

Fed Chairman Jerome Powell said rates could rise another 50 to 75 basis points this month.

More small bank executives worried about overcorrection than three months ago – 61% now from 52% who said the same in IntraFi’s first quarter survey. In terms of overall conditions, 66% now say they believe their banks’ economic conditions will be moderately or significantly worse 12 months from now, compared to 47% who said only in the last quarter.

“It was a huge swing…a jump of 20 points,” Weinstein said. Previously, “a slim majority of banks thought the economy was entering negative territory and now a very large majority think so.”

Talk of the chances of a recession is expected to dominate banks’ second-quarter earnings calls, which begin Thursday when JPMorgan reports its latest quarterly results.

Weinstein said he wonders if so much talk of a downturn is turning into “a self-fulfilling prophecy where everyone is negative and worried about the future. But what if we get positive news from tax returns or other elements of the economy? »

“The question is, has the belief that we’re going into a recession taken such a hold that it won’t matter and change the direction in which things are going?” he said.

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