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Aussie multi-millionaire, Morgan Stanley CEO, James Gorman says US recession becoming more likely

Aussie multi-millionaire CEO warns recession is on the way as US inflation peaks to 40-year high and could continue to rise here

  • US headline inflation hit a four-decade high of 8.6 percent in May
  • Morgan Stanley CEO James Morgan said a recession is 50/50
  • Australian stock market suffers worst plunge since March 2020 due to inflation fears

One of the most powerful Australian executives in corporate America says the threat to the world’s largest economy has increased significantly as inflation rises in the US.

James P. Gorman, the richly paid CEO of the multibillion-dollar investment bank Morgan Stanley, revised his predictions of a recession and said it is much more likely than he previously predicted.

The Australian stock market experienced its worst plunge since March 2020 on Tuesday, when the steepest US inflation in four decades scared investors.

James P. Gorman, the highly paid Australian CEO of the multi-billion investment bank Morgan Stanley, thinks a recession in the world's largest economy is a 50/50 proposition (Pictured, Mr. Gorman with his wife Pendleton Dedman)

James P. Gorman, the highly paid Australian CEO of the multi-billion investment bank Morgan Stanley, thinks a recession in the world’s largest economy is a 50/50 proposition (Pictured, Mr. Gorman with his wife Pendleton Dedman)

James Gorman said while Morgan Stanley was safe amid the current economic turmoil, some institutions would be

James Gorman said while Morgan Stanley was safe amid the current economic turmoil, some institutions would be “potentially fatally damaged” (Pictured, Mr. Gorman in Switzerland in 2020)

The S&P/ASX200 fell 5.3 percent early in trading, with more than $110 billion in shares, before recovering to close weaker by 3.84 percent.

The plunge followed a poor session on Wall Street amid fears that US inflation would lead to a hike in interest rates by the US Federal Reserve and possibly lead to a recession in the world’s largest economy.

US inflation reached 8.6 percent, its highest point in 40 years, raising fears of a global recession.

Gorman said there is a 50/50 chance that the world’s largest economy will slide into recession.

“There was a legitimate recession risk. I thought it was about 30 percent. It’s probably over 50 percent now,” he told Morgan Stanley’s US Financials, Payments and CRE conference.

Australia's S&P/ASX200 plunged 5.3 percent early in trading with more than $110 billion wiped out shares before recovering to close weaker at 3.84 percent

Australia’s S&P/ASX200 plunged 5.3 percent early in trading with more than $110 billion wiped out shares before recovering to close weaker at 3.84 percent

“We are now in a brave new world. I don’t think anyone can accurately predict inflation in a year’s time,” he said.

He added that while Morgan Stanley was safe, some institutions would be “potentially fatally damaged.”

He expressed concern about the “geopolitical uncertainty” emanating from the state of the US economy, with “non-financial risks” on things like data stability and cyber risk.

Gorman, who is estimated to be worth $200 million and made $50 million as Morgan Stanley boss in 2021, also said he was “quite relaxed” about the possibility of a recession and that the risk was not 100 percent.

He moved from Melbourne to the United States in the 1980s and worked his way up through corporate America to the prestigious role of head of the multinational investment bank in 2010.

He spoke out last year against the company’s 75,000 employees who were working from home, demanding that they come back to the company’s headquarters.

“If you can go to a restaurant in New York City, you can go to the office,” Gorman said.

A recession in the US often means a recession in other major economies because of tightening financial conditions such as interest rate spikes, slowing trade and economic growth and a decline in confidence.

A recession in the US often means a recession in other major economies due to a tightening of financial conditions such as interest rate spikes, slowing trade and economic growth and a decline in confidence (Pictured, Morgan Stanley headquarters in New York)

A recession in the US often means a recession in other major economies due to a tightening of financial conditions such as interest rate spikes, slowing trade and economic growth and a decline in confidence (Pictured, Morgan Stanley headquarters in New York)

Australia followed suit several times in the 20th century, but notably avoided the last two times that the US economy slipped into recession – in 2001 and from 2007-2009.

A recession is technically two consecutive quarters of a decline in gross domestic product, but is often accompanied by several associated indicators, including higher unemployment and a decline in real wages and consumer spending.

The last time the Australian economy went into recession was in 1991.

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