Deutsche Bank is now warning that the talks about recession are no longer a question of “if” but “when.”
This is after Bank warned that the Federal Reserve’s measures to fight inflation in the U.S. will spark a recession forecasted to begin in the year 2023.
Deutsche Bank is the first major bank to warn about recession and confidently predict it to happen.
Deutsche Bank economists, led by Matthew Luzzetti, wrote in the report, “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.”
They see the Fed raising rates by 50 basis points at each of its next three meetings on its way to a peak above 3.5% by the middle of next year. The Fed’s current target for the federal funds rate is 0.25% to 0.5% after it lifted off levels near zero last month.
Two negative quarters of growth and a more than 1.5% rise in the U.S. unemployment rate have also been predicted by the bank.
According to the Western Journal report:
While Deutsche has indicated that they believe the recession will be “moderate,” there are also serious concerns about stagflation, a condition in which inflation and unemployment are high and demand is stagnant.
Moody’s Analytics chief economist, Mark Zandi, said that the risks of recession and stagflation are “uncomfortably high,” Forbes reported.
Analysts have pointed to the Russia-Ukraine war as a contributor to the financial chaos, but many are also blaming the Fed.
The former president of the Federal Reserve Bank of New York, economist William Dudley, said that a recession is “virtually inevitable” and that the central bank is too far “behind the curve in controlling inflation” and the Fed remains too optimistic about the possibility of a soft landing.
In March, Goldman Sachs analysts found it necessary to actually downgrade their predictions for American economic growth in 2022.
This came after the surge in consumer prices (especially oil) in the aftermath of Russia’s invasion of Ukraine.
The investment bank cut its growth forecast from an expectation of 3.1 percent down to 2.9 percent.
But in March, Goldman Sachs analysts were still predicting that the chance of a recession in the next year was only 20 to 35 percent, Reuters reported.
However, as things have continued on the trajectory of rising consumer prices, supply chain problems, inflation and rising interest rates, Deutsche was ready to predict an upcoming recession confidently.
But in good news, Deutsche foresaw only a “mild” recession, including unemployment above 5 percent in 2024, enough to warrant “considerable layoffs,” but far less than the 10 percent to 14.7 percent levels seen during the Great Recession. They also predicted that the recession would allow inflation to get closer to the Fed’s 2 percent target by 2025, CNN reported.
Source: Western Journal
