EDITOR'S NOTE: There is "no question" of an economic downturn, and a recession is "going to be hard to avoid,” says Wells Fargo CEO Charlie Scharf. According to him, an economic slowdown is guaranteed, yet he remains on the fence with regard to a recessionary drop. Should a recession take place, he questions how long it might last given the strength of businesses and consumers; both of which might dampen the effect. Based on the recent retail sales data, consumer spending in April was relatively strong despite rising costs. With inflation running at decade highs, one wonders how long consumers can hold on before spending begins to contract. First-quarter earnings are already showing signs of revenue weakness, whether from slowing sales or higher input costs. While Wells Fargo sits somewhere in the middle between megabanks that hold a more optimistic and pessimistic view, the question of whether the Fed can achieve a soft landing is looking dimmer by the day. In short, the smartest move for any investor may be to prepare for higher inflation and economic contraction, hedging either outcome.
- Charlie Scharf said there was "no question" of an economic downturn, with a recession hard to avoid.
- The strength of businesses and consumers would hopefully make any recession short, he told the Journal.
- The Wells Fargo CEO said markets were reacting to the Fed tightening monetary policy to tame inflation.
Wells Fargo's CEO said there's "no question" of an economic downturn in the US, and a recession looks difficult to avoid.
Speaking to The Wall Street Journal's "Future of Everything Festival" on Tuesday, Charlie Scharf said, "It's going to be hard to avoid some kind of ."
He said businesses and consumers are still strong, but the world is reacting to the Federal Reserve as it raises interest rates to tame surging inflation.
"You've got the Fed saying the economy is running too hot, that we need to slow economic growth," Scharf said. "Rates are going to rise, and it's going to change the dynamic of the health of the consumer and business over a period of time." He added that this strength would deteriorate.
US inflation is running at 40-year highs, and the Fed is under pressure to control it before it harms the economy. But there is concern the central bank could tip the economy into a recession by hiking rates too aggressively. The Fed raised interest rates by 50 basis points in May, the biggest increase at one meeting in 22 years. It also signaled that similarly aggressive rate hikes would follow.
Scharf said while an economic downturn in the US is guaranteed, and a recession seems hard to escape from, the resilience of businesses and consumers would dampen its effect.
"The fact that everyone is so strong going into this should hopefully provide a cushion such that whatever recession there is, if there is one, is short and not all that deep," he said.
Concerns of a recession vary on Wall Street. Bank of America and Deutsche Bank say the US is certain to enter into recession. Others are less pessimistic, with JPMorgan and UBS acknowledging that economic pressures will persist, but they don't see a full-on slowdown.