Wells Fargo CEO Predicts Economic Downturn For US Economy

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“It’s going to be hard to avoid some kind of recession,” said Scharf, who happened to be in attendance when Fed Chairman Jerome Powell was present. “We live in this strange world where there’s still this extraordinarily underlying strength in terms of what we see, but you know that it’s going to deteriorate,” said Scharf.

The U.S. economy shrank by 1.4 percent in the first quarter, the worst data since the pandemic hit in spring 2020

The recent actions by the central bank have raised the specter of a potential recession, which some investors fear could happen if interest rates are pushed up too quickly.

“You’ve got the Feds saying that the economy is running too hot, that we need to slow economic growth,” said Scharf.

“You see the markets reacting to that and so that volatility is going to continue and, you know, the rates are going to rise—it’s going to change the dynamic of the health of the consumer and the business over time.”

The Federal Reserve rates latest hike in interest rates was on May 4, a move which former Fed Chairman Ben Bernanke said in hindsight, was too late.

Rates have been raised twice so far this year by a total of 75 basis points, with five more hikes planned in 2022 to cool down the economy and curb soaring inflation.

The rate hikes have already pushed up the borrowing costs for mortgages, credit cards, and other loans for Americans across the board.

However, Scharf noted that consumers and businesses are still doing financially well, as the economy continues to grow post-pandemic, while supply issues ease, thus cushioning it during a future recession.

“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.

“What we hope is that the strength that we see in consumers and businesses is enough to weather the downturn.”

Fears that the Fed’s tightening policy will hamper economic growth have pushed down the stocks of major banks, such as Wells Fargo.

Many Berkshire investors had been pressuring Buffett to sell all of his group’s holdings in Wells Fargo since 2019, after a series of scandals, which have damaged the bank’s image with investors.

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