The US economy will grind to a halt in the second half of 2023 and the following year won't be much better, BofA says as it slashes its growth forecast

Bank of America predicts that growth will stall next year and that there will be a recession.

Two days after the Federal Reserve hiked interest rates, analysts said it was too slow to tackle inflation, which is currently running at a 40-year high.

The impact of tighter financial conditions will cause GDP growth to fall to zero by the second half of the 20th century. BofA sees a 40% chance of a recession next year. According to analysts, only a modest rebound will happen by then.

The note states that the Fed fell way behind the curve and are now playing a dangerous game of catch up.

BofA doesn't think inflation will be able to get down to the central bank's 2% target. Around 3% is how long it will last. Inflation expectations are anchoring at higher levels and wage pressures will be difficult to reverse.

BofA said the rate hike was a strong step in the right direction and that the Fed is catching up to properly attack inflation.

Analysts don't think the Fed will know what to do after completing its tightening cycle. BofA's baseline forecast assumes the Fed will be like a deer in the headlights, unsure over whether to react to weak growth or high inflation.

BofA warned that it's vulnerable to downside risk due to potential shocks from the Ukraine war, energy prices, and sanctions on Russian supporters. The main domestic risk to the forecast is if the Fed is committed to lowering inflation to 2% because getting to there would require policy that is so tight that it would cause a recession.

"My colleagues and I are acutely focused on returning inflation to our 2% objective," Powell said at the conference.

It is easier for the Fed to manage a sharp slowdown if Fed policy causes it. If there is a recession, it will be mild.