Warren Buffett deals a heavy blow to the US economy, warns the era of easy money is over

Warren Buffett

Warren Buffett.Chip Somodevilla / Getty

  • Warren Buffett gave a negative outlook for the US economy on Saturday.

  • The Berkshire Hathaway CEO says the boom times for his businesses are over.

  • Higher interest rates and banking pressure are raising fears of a recession and credit crunch in the US.

Warren Buffett expects a recession this year, he said in Berkshire Hathawayannual shareholder meeting on Saturday.

“The majority of our businesses will actually report lower earnings this year than last year,” said the prominent investor and Berkshire CEO, given that a recession is expected. due to a broader economic slowdown.

Berkshire owns numerous businesses including Geico, See’s Candies and BNSF Railway. It operates in many industries including insurance, energy, real estate, railways, manufacturing, retail and services. Its size and scope mean that investors see it as a microcosm of the US economy.

Buffett emphasized that many of Berkshire’s businesses have performed well over the past few years. They benefit from the lowest interest rates and the US government pumping money into the economy to offset the impact of the COVID-19 pandemic.

“That era is over,” Buffett said. “It’s a different climate than it was six months ago.”

The Federal Reserve has raised interest rates from near zero to 5% over the past 14 months, in an attempt to rein in historic inflation. Higher interest rates encourage saving over spending and increase borrowing costs, which means they often erode demand, lower asset prices, and increase recession risk.

Furthermore, higher interest rates have put pressure on banks by cutting the value of their fixed income portfolios. They have also pushed depositors to withdraw their money en masse and deposit it in higher-yielding bonds and money market funds instead.

These factors have motivated Current banking crisis. Silicon Valley Bank and Signature Bank both failed in March and JPMorgan recently scoop up The Bank of the First Republic is under siege.

The chaos has raised fears that banks – in a bid to shore up their finances and prepare for further bank runs – could stop lending, triggering a financial crisis. . credit crisisand drag the economy into recession.

Buffett stressed that higher interest rates aren’t all bad news for Berkshire. He noted that the company is likely to earn about $5 billion from about $125 billion in cash, Treasuries and other short-term investments this year, up from about $50 million a few years ago. .

Read the original post on Business Insider


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