A Major Bank Is Now Forecasting a Recession Will Hit the US
Banks, traders and economists have been watching the economy — along with just about anybody with a paycheck — trying to anticipate if and when a recession might hit the U.S.
Now, the first major bank has stepped forward to say that a recession is no longer a question of “if” but “when.”
Deutsche Bank has warned that the Federal Reserve’s measures to fight inflation in the U.S. will spark a recession that will likely begin late next year, CNN reported.
This is the first major bank to step forward and confidently predict a recession.
“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.
With the surge of inflation and the hike in interest rates that the Fed announced, Deutsche’s economists are predicting that the economy will take a “major hit from the extra Federal Reserve tightening by late next year and early 2024,” Forbes reported.
The bank also predicted “two negative quarters of growth and a more than 1.5% rise in the U.S. unemployment rate.”
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.
The concern about stagflation is not new, since inflation recently hit a record 7.9 percent — a figure not seen since the 1980s, Trading Economics reported.
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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.
Investment bank Goldman Sachs also previously forecasted rough times ahead of the American economy, Reuters reported.
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.
This article appeared originally on The Western Journal.
