Deutsche Bank updated its recession forecast. Economists at the bank see a “faster and somewhat more severe recession” than previously forecast. The economist said, “The Fed has stepped in to raise rates more aggressively, financial conditions have tightened sharply, and economic data are beginning to show clear signs of a slowdown.”
Deutsche Bank’s Recession Forecast
The bank said in April that the U.S. economy would be in a “major” recession by the end of next year.
However, Rusetti explained in the memo that “since that time, the Fed has taken a more aggressive hiking path, financial conditions have tightened sharply, and economic data are beginning to show clear signs of a slowdown.” A Deutsche Bank economist continued.
In light of these developments, we now expect an earlier and somewhat more severe recession.
The Federal Reserve raised its benchmark interest rate by 75 basis points last week, the largest increase since 1994.
In its semiannual report to Congress released Friday, the Fed said:” The Committee is acutely aware that high inflation causes great hardship, especially for those who cannot cope with the rising costs of necessities … The Committee’s commitment to restore the price stability necessary to maintain a strong labor market is unconditional.”
A Deutsche Bank economist noted.
A tighter tightening of financial conditions could easily bring the risk of a recession forward until around the beginning of the year, potentially short-circuiting the Fed’s tightening cycle.
Moreover, “Nevertheless, higher inflation in the meantime would likely constrain the Fed’s ability to cut rates to counter a recession. On the other hand, more persistent inflationary pressures and a more resilient economy in the near term would pose an upward risk to our Fed view.”
Earlier this month, the World Bank warned of a global recession. President David Malpass said, “For many countries, a recession will be inevitable.”
Other figures who have warned of the coming recession include Tesla CEO Elon Musk, Citigroup CEO Jane Fraser, Soros Fund CEO Dawn Fitzpatrick, Big Short investor Michael Barry, and Robert Kiyosaki, author of Rich Dad, Poor Dad. figures.
On Sunday, U.S. Treasury Secretary Janet Yellen told ABC News, “I don’t think a recession is entirely inevitable.” Additionally, a Wall Street Journal survey showed that economists have dramatically raised the probability of a recession to 44% over the next 12 months, from 28% in April and 18% in January, the magazine reported Sunday.
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