PITTSBURGH — PNC Financial Services Group CEO Bill Demchak believes the country is headed for a recession, albeit a mild one.
"I don't see any possible outcome other than recession," he said during the Bernstein Strategic Decisions Conference in New York City Thursday.
The Federal Reserve must put the brakes on the economy by raising interest rates in order to tame roaring inflation, he said. The annual inflation rate was 8.3% in April, down from a 41-year high of 8.5% in March.
"We're gonna have a slow down for a period of time," he said. "We have to get inflation right."
Demchak isn't alone in his thinking. A group of economic forecasters surveyed in April raised the projected risk of recession to around 30% over the next 12 months, rising substantially in 2023 as the Fed engineers a series of rate hikes.
"We are going to slow down. I don't think it's going to be a hurricane," Demchak said. "We are going to get inflation under control. I think rates will be higher than people assume and I think we will come out of it just fine.
"Frankly. I think we are going to have a big rip back," he said.
For now, the economy is chugging along nicely, led by free-spending consumers.
"Consumers are really strong. They are going to continue to drive the economy in the near term," he said.
"The balances in [PNC] checking accounts continue to grow. I'm not sure I can explain why that is or how that is."
Early in the pandemic, it was easier to understand because extra unemployment benefits and cash rebates were helping to fill consumer wallets.
"I'm not sure we have a good explanation for it [now]," he said.
Demchak isn't expecting another crash in the housing market similar to 2008, even though home prices have been soaring.
"The last time there was a housing bubble we saw prices run up like this, but we had an overstock of ... millions of homes that were built that nobody needed," he said. "Today, we are still short 12% to 14%" in housing stocks.
As the economy slows, he said he believes the brunt of the fallout will hit small businesses.
"It's going to be small businesses getting squeezed through inflationary pressure and just the inability to hold margin," he said.
