-
Warren Buffett issued a negative forecast for the US economy on Saturday.
-
The CEO of Berkshire Hathaway said his business boom period is over.
-
High interest rates and banking pressures are stoking fears of a recession and credit crunch in the United States.
He said during Warren Buffett that he expects an economic slowdown this year Berkshire HathawayAnnual shareholder meeting on Saturday.
“The majority of our business will actually report lower earnings this year than last year,” said the noted investor and CEO of Berkshire, attributing the expected decline to a broader economic downturn.
Berkshire owns dozens of businesses including Geico, See’s Candies and BNSF Railway. It operates in a range of industries including insurance, energy, real estate, rail, manufacturing, retail and services. The size and scope of its operations means that investors view it as a microcosm of the American economy.
Buffett stressed that many of Berkshire’s businesses have performed well over the past two years. They benefited from ultra-low interest rates, and the US government flooding the economy with money to offset the impact of the COVID-19 pandemic.
“That period is over,” Buffett said. “It’s a different climate than it was six months ago.”
The Federal Reserve has raised interest rates from nearly zero to over 5% over the past 14 months, in an effort to curb historic inflation. Higher rates encourage saving more than spending and raise borrowing costs, which means they usually erode demand, lower asset prices, and increase recession risks.
Moreover, higher interest rates have added pressure on banks by devaluing their fixed income portfolios. They also prompted depositors to withdraw their money in droves and put it into higher-yielding bonds and money market funds instead.
These factors fueled current banking turmoil. Silicon Valley Bank and Signature Bank both failed in March, and JPMorgan failed more recently reap The embattled First Republic Bank.
The chaos has fueled fears that banks – in an effort to shore up their finances and prepare for more bank withdrawals – may cut back on lending, causing a crisis. credit crunchand dragged the economy into recession.
Buffett emphasized that higher prices aren’t entirely bad news for Berkshire. He noted that the company is likely to earn about $5 billion from about $125 billion in cash, Treasury notes, and other short-term investments this year, up from about $50 million two years ago.
Read the original article at Business interested