BoA / ML on recession – worried the US economy has run out of luck

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Snippets from a Bank of America / Merrill Lynch client note on their US outlook

We now have a number of early indicators
starting to signal heightened risk of recession. Our official model has
the probability of a recession over the next 12 months only pegged at
about 20%, but our subjective call based on the slew of data and events
leads us to believe it is closer to a 1-in-3 chance.

Our baseline is that this is simply the third mini-cycle in this
expansion and that the economy will return to above-trend growth at the
end of next year after a soft patch

However, we are worried that
the economy will not be as lucky this time around for a few reasons: 

  1. later stages in the cycle – the economy has returned to full capacity and we no longer have “easy growth”; 
  2. monetary policy tools are limited; 
  3. there is a persistent external shock hitting the global
    economy – the trade war – creating high uncertainty across the global
    economy.

    As we have consistently noted, expansions do not die of
    old age, but they can die from a policy mistake. And we are ripe for a
    policy mistake today.

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