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Recession calls are mounting among Wall Street’s big banks

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Yahoo Finance’s Alexandra Semenova joins the Live show to discuss recession calls among Wall Street’s big banks.

Video transcript

[MUSIC PLAYING]

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. Calls of a recession mounting on Wall Street. Deutsche Bank is the latest, saying that there is a 50% chance of a recession in 2023. Yahoo Finance's Alexandra Semenova has the latest. Alex.

ALEXANDRA SEMENOVA: Well, guys, obviously, there has been no shortage of recession talk this week, both on Wall Street and in Washington. But it's been particularly interesting to hear from some of the big banks who are all coming out and putting out their own probabilities for when they think an economic downturn will happen. And it just marks such a quick change in sentiment from just a few weeks ago when it seemed that the consensus was, oh, well, a recession is on the radar, but it's probably unlikely at this point, to, now, a recession is pretty likely, and it's just a matter of when it will come and how severe it will be.

Just think about late April, when Deutsche Bank came out and was the first to make that recession call. And everyone kind of raised their eyebrows at that and thought it was premature and a bit exaggerated. And now, all of the big banks are coming out and saying that a recession is on the horizon. You have Citibank saying that there's a 50% chance. Goldman, Morgan Stanley all putting the odds above 30%. So a really dramatic change here among the big banks and all--

JULIE HYMAN: Yeah, raising the likelihood. What are they saying the reasoning is for the change? And, like, how do they figure out these probabilities anyway? I always wondered this kind of stuff.

ALEXANDRA SEMENOVA: Well, obviously, last week's rate hike was the big game changer here. And that's when everyone kind of came out and started putting out these probabilities. But all of them, they're watching the same economic indicators. But they all emphasize different points in the notes that they have put out. Citibank specifically pointing to a slowdown in consumer spending. Goldman Sachs pointing to higher gas prices as the reasoning. You know, obviously, that will weigh on people spending money and probably motivate the Fed to act more aggressively.

And BlackRock, which is not a bank, but an asset manager, put out an interesting note earlier this week, saying that a recession is essentially inevitable if the Fed moves forward with its rate hikes, no matter what happens, just because they're so late to addressing the issue of inflation.

JULIE HYMAN: And some people say recession is inevitable. It's just a matter of when it's going to happen in the next year or further out. So we'll see how these banks continue to change their forecasts as time goes on.

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