Ricky Scaparo – April 5, 2022
The Federal Reserve’s fight against inflation will spark a recession in the United States that begins late next year, Deutsche Bank warned on Tuesday. The recession call — the first from a major bank — reflects growing concern that the Fed will hit the brakes on the economy so hard that it will inadvertently end the recovery that began just two years ago.
“We no longer see the Fed achieving a soft landing. Instead, we anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” Deutsche Bank economists led by Matthew Luzzetti wrote in the report.
‘The US economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024,’ the bank’s economists said in a note to clients Tuesday.
‘We see two negative quarters of growth and a more than 1.5 percent point rise in the US unemployment rate, developments that clearly qualify as a recession, albeit a moderate one.’
The prediction comes as the Fed voted to raise interest rates last month by a quarter-point for the first time in three years to curb inflation, which is at nearly 8 percent and the highest its been in 40 years. It also comes as a 2-year Treasury yield momentarily surpassed the 10-year yield last week, a classic sign that has preceded every US recession.
While the Federal Reserve is aiming to raise interest rates by 2 percent by the end of 2022, Deutsche anticipates the Fed will go beyond that and raise rates to 3.5 percent into 2023.
The central bank projects overall inflation will be up 4.3 percent just this year. Meanwhile, economic growth is projected at 2.8 percent this year, a steep drop from the 4.0 percent growth projected in December.