Jane Fraser, chief executive of Citigroup, predicted that the Federal Reserve’s (Fed) terminal interest rate will approach 5.5% by May this year, and the US economy may enter recession in the second half of this year.
Fraser previously said that while headline U.S. inflation has peaked, the pain from services sector inflation remains.
She predicted that the Fed will raise the terminal interest rate to just below 5.5% by May and keep interest rates at this level until the end of next year, while according to the interest rate dot plot, the Federal Open Market Committee (FOMC) forecast The terminal rate will reach 5.1% in 2023.
When it comes to the U.S. economy, Fraser predicts a recession sometime in the second half of the year. The Fed’s aggressive interest rate hikes last year put financial markets under pressure, causing Citigroup’s net profit to fall 34% in the first nine months of last year compared to the same period of the previous year.
“No industry has felt the headline economic fallout more than investment banking, with a stagnant dealmaking environment making 2022 a difficult year,” Fraser said. But she also said that as spending and borrowing activity returned to normal , U.S. loan and interest balances are increasing.
The Bank of Japan (BOJ) raised its cap on yields at the end of last year, sparking speculation whether this was a prelude to a policy shift. Citing analysis from Citigroup’s economics team, Fraser said the BOJ’s move was aimed at undoing side effects so far and allowing loose financial conditions to persist.
However, according to Citi analysis, any additional adjustments by the Bank of Japan are likely to stimulateJPYFurther strength, which will not only drag down US corporate earnings and the stock market, but even the outlook for inflation.
