US economy heading into downturn, Wells Fargo CEO warns: 'No question'

Recession may be mild thanks to strong consumer sending, Scharf said

Is the U.S. economy on track for a recession? According to Wells Fargo CEO Charlie Scharf, there is no doubt that a downturn is looming on the horizon.  

With the Federal Reserve moving rapidly to tame sky-high inflation by aggressively raising the benchmark federal funds rate, Scharf said that it is likely there will be some economic fallout.


"It’s going to be hard to avoid some kind of recession," he said during a Wall Street Journal live event. 

Wells Fargo CEO Charlie Scharf speaks during the Milken Institute Global Conference in Beverly Hills, California, on Oct. 18, 2021.

Charles Scharf, chief executive officer of Wells Fargo & Co., speaks at a panel discussion during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, Oct. 18, 2021. (Kyle Grillot/Bloomberg via Getty Images)

Still, the outlook is not entirely bleak: With consumers still spending and businesses financially healthy by most measures, the bank's chief executive said it will likely be a mild downturn. 

"The fact that everyone is so strong going into this should hopefully provide a cushion such that whatever recession there is, if there is one, is short and not all that deep," he said.

Wells Fargo

This Tuesday, Oct. 12, 2021 photo shows a Wells Fargo location in Philadelphia.  (AP Photo/Matt Rourke / AP Newsroom)

Scharf's comments come amid growing fears on Wall Street that the Fed may drag the economy into a recession as it seeks to tame inflation, which remained elevated at 8.3% in April. Bank of America, as well as Fannie Mae and Deutsche Bank, are among the Wall Street firms forecasting a downturn in the next two years. 

The Fed is now under mounting pressure to cool demand and prices, but faces the tricky task of doing so without crushing economic growth. Policymakers raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades and have signaled that more, similarly-sized rate hikes are on the table at coming meetings as they rush to catch up with inflation. 

FILE - In this Jan. 29, 2020 file photo, Federal Reserve Chair Jerome Powell pauses during a news conference in Washington. (AP Photo/Manuel Balce Ceneta, File / AP Newsroom)

Fed Chairman Jerome Powell has acknowledged there could be some "pain associated" with reducing inflation and curbing demand but pushed back against the notion of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing – the sweet spot between cooling demand without crushing it and triggering a recession – is not assured. 


"It will be challenging, it won’t be easy. No one here thinks that it will be easy. Nonetheless, we think there are pathways... for us to get there," Powell said during an interview last week with Marketplace.