Elon Musk says we're in a recession. Here's what Wall Street thinks.

An "inflation shock" will cause a recession in 2022, as well as an equity bear market, according to Bank of America researchers. 

"Inflation causes recessions," BofA said last month, and right now, inflation is "out of control," according to the note.

Nearly all prior recessions have been preceded by inflation surges, the researchers noted, including in the late 1960s, early 1970s, and in 2008. "Last dominoes to drop in terms of recession expectations is higher yields and weaker dollar," they said. 

Bank of America predicts that a "rates shock" — when the value of one currency spikes in relation to another in an short period of time — will follow the ongoing inflation shock, which will ultimately lead to a recession.

The analysts add that the recession will cause the S&P 500 to fall below the key 4,000 level by the end of 2022, they said.

Deutsche Bank is in agreement with Bank of America: a recession is likely, except their timeframe is by the end of 2023. And the firm's researchers predict that the trigger will be the Fed hiking interest rates above 5%.

The bank's economic researchers, led by global head David Folkerts-Landau, said in a recent note that — in order to stamp down on inflation — the central bank will have to raise the federal funds target rate much higher than the 3% currently expected by many analysts.

"We will get a major recession, but our strongly held view is that the sooner and the more aggressively the Fed acts, the less longer-term damage to the economy there will be," they said.

The economists argued that inflation will continue to surge past expectations due to the hot labor market and supply-chain issues, pushing the Fed to act. 

"We assume conservatively that a fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time," they wrote.

JPMorgan researchers said in March that a near-term recession is unlikely, despite also forecasting continued financial pressures on US households. After the recent GDP contraction, they maintained their original stance that the US will avoid a prolonged slowdown.

"The Fed is going to fight inflation this year and likely into next, but there are many other ways for inflation to fall regardless of what happens to interest rates," Jacob Manoukian, head of investment strategy, said in a note, arguing that the signs are pointing to weaker consumer-good prices over the course of the year, "which means inflation could soon look much more tolerable." 

Manoukian also said that both businesses and consumers in the US and Europe have historically healthy balance sheets, and said that current household debt growth is likely temporary, showing that people are building debt after months of erasing it. He pointed to high current corporate profit margins as well, saying that if they began to decline, the forecast would lean more strongly toward a recession. 

"The data from JPMorgan showed that on average, people in the bottom quintile have more money in their bank accounts than before the pandemic," Dean Baker, a co-founder of the Center for Economic and Policy Research, told Insider. "Also, wage growth has been fastest in lower paying jobs, far outstripping inflation." 

UBS and JPMorgan researchers are in agreement about a recession looking unlikely. 

Matthew Mish, head of credit strategy at UBS, told Insider that the savings that Americans accrued during the pandemic is one reason that inflation isn't going to overwhelm households. He also said that growing bargaining power for service-sector workers and increased debt likely being temporary are other reasons to be reassured. 

Mish and his team noted last month that consumer sentiment remains "bearish," underscored by depressed attitudes for homebuying and auto purchases due to high inflation. Weakness in sentiment has been a consistent indicator of recessions in prior cycles, but he said that it's misplaced here. 

"While concerns around the impact of higher inflation on lower socioeconomic (SES) groups are elevated, the CFS results suggest the reality may be less alarming," the UBS researchers wrote. 

And even amid last quarter's GDP contraction, UBS is fairly confident we won't see a recession, pointing to "solid" US earnings, and to the Fed, which UBS says is unlikely to induce a recession with the prospect of falling inflation. They disagree with Deutsche Bank and Bank of America's prediction, which is that inflation will continue to surge. 

"Our base case is that inflation is likely to fall from current levels but remain above pre-pandemic ranges," the UBS editorial team wrote this week. "We expect growth in 2022 to be slower than last year, but not tip over into recession. Our view remains that the right strategy is to position for inflation — a clear and present fact — rather than recession, which is still only a future possibility."