Morgan Stanley Chairman and CEO James Gorman speaks at the annual meeting of the Institute of International Finance in Washington, October 10, 2014.
Joshua Roberts | Reuters
The odds of a recession may increase as the Federal Reserve struggles with inflation, but it’s unlikely to be deep, according to Morgan Stanley CEO James Gorman.
“It’s possible we’re going into a recession, obviously, probably 50-50 now,” Gorman said Monday at a financial conference hosted by his New York-based bank. That’s up from his earlier estimate of 30% recession risk, said Gorman, who added that “it’s unlikely that at this point we’ll be entering a deep or long recession.”
Gorman was speaking as markets plummeted as central banks expected to aggressively fight inflation. Banking leaders have recently sounded the alarm over the economy as the Fed hikes rates and rolls back quantitative easing programs. Rival CEO Jamie Dimon said he predicted a “hurricane” to come due to central banks and the conflict in Ukraine.
But Gorman said he was confident the Fed would eventually be able to bring inflation down from its multi-decade highs.
“I don’t think we’re falling into a massive sinkhole in the next few years, I think the Fed will eventually get inflation under control,” he said. “You know it’s going to be bumpy; people’s 401(k) plans are going to be down this year.”
While the markets have slumped, the fundamentals of the economy, including consumer and business balance sheets, are in better shape than the markets suggest, which is reassuring Gorman, he said.
Yet the Fed has waited too long to raise rates, leaving it with less room to maneuver in a recession, Gorman said. The CEO began discussing recession risk with his internal committees last August or September when it was clear inflation was going to be more persistent than expected, he said.
“We’re in a sort of ‘Brave New World’ right now, and I don’t think there’s anyone in this room who can accurately predict where inflation will be a year from now,” Gorman said.