US: Lower profits of large financial institutions revive recession fears

First modification: 07/15/2022 – 18:03

A Federal Reserve under pressure faces the dilemma that no central bank wants to face: keep raising interest rates to cool the economy and contain the indiscriminate rise in prices or stick to the inflationary punishment and moderate the increases to avoid a recession. The Fed appears to lean towards the former.

The chances of a recession shaking the foundations of the world’s most powerful economy have panicked investors, who are already betting on a more aggressive stance from the central bank and preparing for the worst.

Although a recession technically occurs when the economy contracts for two consecutive quarters, there are certain thermometers that can shed light on what is ahead. One of them is the financial behavior of the main banks.

A semester of low profits

A first look at the results of some of the largest financial institutions in the United States reflects a disappointing semester, with revenues and profits falling and a market willing to assume new interest rate hikes.

Investors worry that the Federal Reserve will steer the US economy into recession – by raising rates – to combat inflation. A recession would mean that some Americans lose their jobs and probably begin to fall behind on their loans.

However, these fears have been offset by better income for banks thanks to higher interest rates.

The largest bank in the United States, JPMorgan Chase, obtained a profit of 16,931 million dollars in the first half of 2022, 35.49% lower compared to the same period last year, while the investment bank Morgan Stanley it also saw a drop of 19.26% in the same period.

Wells Fargo, the fourth largest bank in the United States in assets, announced this Friday, July 15, that in the first six months of the year it had net profits of 6,790 million dollars, which also represents a year-on-year decrease.

BlackRock, Citigroup, US Bancorp, Bank of America and Goldman Sachs will complete the list of financial results of the largest banking firms, between this Friday and next Monday.

With Reuters and EFE