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BofA Sees "More 'Stag', More 'Flation'" In US Forecasts

US OUTLOOK/OPINION
BulletMarketsFixed IncomeForeign Exchange

BofA has joined several of its peers in downgrading US growth forecasts while raising inflation expectations: they see 2022 real GDP growth of 2.6% (2.7%), with 2023 coming in at 1.5% (was 1.8%). On a quarterly basis, growth will slow all the way to 0.4% by Q423 (was 1.0%).

  • Core PCE is seen at 3.0% by Q423 (2.6% prior) and 3.3% on average for 2023 (vs 3.1% prior), with no change to their 2022 core outlook.
  • They see the labor market continuing to overheat, "suggesting that the Fed will have to push the unemployment rate up in 2023 and 2024".
  • Even so, they haven't changed their Fed call, looking for a peak rate of 3.25-3.50% and a pause in hikes beginning May 2023 (a little above market expectations).
  • They regard their baseline as on "the optimistic end of likely outcomes", with risk skewed toward an outright recession (1/3 chance of one starting in 2023) that would "likely be mild by historic standards" (they name 1970, 1990, 2000 recessions).

Source: BofA

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BofA has joined several of its peers in downgrading US growth forecasts while raising inflation expectations: they see 2022 real GDP growth of 2.6% (2.7%), with 2023 coming in at 1.5% (was 1.8%). On a quarterly basis, growth will slow all the way to 0.4% by Q423 (was 1.0%).

  • Core PCE is seen at 3.0% by Q423 (2.6% prior) and 3.3% on average for 2023 (vs 3.1% prior), with no change to their 2022 core outlook.
  • They see the labor market continuing to overheat, "suggesting that the Fed will have to push the unemployment rate up in 2023 and 2024".
  • Even so, they haven't changed their Fed call, looking for a peak rate of 3.25-3.50% and a pause in hikes beginning May 2023 (a little above market expectations).
  • They regard their baseline as on "the optimistic end of likely outcomes", with risk skewed toward an outright recession (1/3 chance of one starting in 2023) that would "likely be mild by historic standards" (they name 1970, 1990, 2000 recessions).

Source: BofA