Yahoo Finance's exclusive coverage from the World Economic Forum in Davos, Switzerland continues as Yahoo Finance sat down with top leaders to discuss the economic outlook for 2024. Here are some of the highlights.
Bank of America CEO Brian Moynihan (00:00:03)
Bank of America CEO Brian Moynihan (BAC) explains why he thinks we will see a soft landing. “What a soft landing is, you don’t go negative in GDP growth on a quarterly basis… So now [our team’s] basic view is we drop from the growth rate in the third quarter 4 plus, down to 1 percent annualized GDP growth for the first three quarters. That is a soft landing. It didn’t go negative, but it landed and got near zero… That’s the prediction… And that’s largely due to the consumer,” Moynihan says.
Guggenheim Partners Investment Management CIO & Managing Partner Anne Walsh (00:00:43)
Guggenheim Partners Investment Management CIO and Managing Partner Anne Walsh discusses why she believes we will see “a mild recession.” “We’ve seen the yield curve being inverted for 300 plus days is a precursor to recession historically. And our view is, is that we are going to see a mild recession… just a good old-fashioned slowdown in business,” Walsh explains. “We’re just a little bit more concerned that the economy will slow down more than that soft landing view.”
Walsh adds that she thinks of “the economy as almost two economies now.” “There’s the big companies, the big market participants, they all seem to be doing pretty well. They’re coming into this slowdown cycle with a tailwind... However, the small and midsize businesses in the U.S.,” Walsh explains, “that’s a different story. They’re going to be having to refinance as a refinancing wall in coming with commercial industrial loans, particularly in small and midsize banks.”
Stifel Financial CEO Ron Kruszewski (00:02:02)
Stifel Financial CEO Ron Kruszewski (SF) discusses expectations for rate cuts from the Federal Reserve in 2024. “The Fed will cut less than the market thinks and not as soon as the market thinks,” Kruszewski notes. “The definition of a soft landing would be that the Fed could cut while the economy’s strong. But the reason I tapped those expectations down a little bit, is that the Fed really was concerned about inflation… And I don’t see the Fed just saying ‘oh we’ve solved the problem’ by March.” Kruszewski adds that “a hard landing starts with a soft landing.”
Harvard University Professor of Economics Kenneth Rogoff (00:02:47)
Kenneth Rogoff, Maurits C. Boas Chair of International Economics at Harvard University, explains why “the Fed just doesn’t know what it’s looking for.” The Federal Reserve “wants to find a path of interests rates so that inflation’s stable. They don’t know what it is and they’re going to feel it out,” Rogoff says.
Video Transcript
[MUSIC PLAYING]
BRIAN MOYNIHAN: What a soft landing is, you don't go negative in GDP growth on a quarterly basis. And so our team-- if we were talking last year, we did talk last year, they basically said, we're going to have a recession later in 23, early 24, and as the year went on, they pushed that out. And so now their basic view is, we drop from the growth rate in the third quarter 4-plus down to 1% annualized GDP growth for the first three quarters.
That is a soft landing. It didn't go negative, but it landed and got near zero, and so that's the prediction. The team does a great job, and that's why they've come out, and that's largely due to the consumer and the consumer strength and the resiliency and the spending and the capitalism and the entrepreneurism and innovation, US. That's what's-- the US is different.
ANNE WALSH: We've seen the yield curve being inverted for 300-plus days, is a precursor to recession, historically. And our view is that we are going to see a mild recession. We're not going to see the big pandemic or global financial crisis kind of recession, just a good old-fashioned slowdown in business. We're just a little bit more concerned that the economy will slow down more than that soft-landing view. I think of the economy as almost two economies now. It's very bifurcated.
There's the big companies, the big market participants. They all seem to be doing pretty well. They're coming into this slowdown cycle with a tailwind, and the tailwind is they've been able to pass along their higher costs. Their margins have been protected, and they have access to capital. However, the small and mid-sized businesses in the US, which make up about 50% of the GDP, I think that's a different story.
They're going to be having to refinance as a refinancing wall is coming with a commercial and industrial loans, particularly in small and mid-sized banks, and they're going to be refinancing at much higher rates, particularly relative to what the big participants can borrow at. They're still borrowing at prime 8.5% to 10% or more for those small and mid-sized businesses if they can access the capital at all. Otherwise, particularly for small businesses, they may be forced into credit card borrowing.
RON KRUSZEWSKI: The Fed will cut less than the market thinks, and not as soon as the market thinks. The definition of a soft landing would be that the Fed could cut while the economy is strong, but the reason I tapped those expectations down a little bit is that the Fed really was concerned about inflation, witness the 500-basis-point increase.
It was every other month they're raising rates. And I don't see the Fed just saying, Oh, we solved the problem by March. Hard landing starts with a soft landing. So you can think about that, and the answer is that, yes, everything is set up. But there are so many variables that we don't know and mostly, geopolitical that can unveil the best laid plans of mice and men.
KENNETH ROGOFF: If you look at the forecast, probably a recession is more likely than a boom. So maybe that's partly built in to what those predictions are. I think we have a soft landing. Maybe we'll get three cuts, something like that. I think the Fed just doesn't know what it's looking for. It wants to find a path of interest rates so that inflation is stable. They don't know what it is, and they're going to feel it out.
[MUSIC PLAYING]
