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April 7, 2022 02:00 pm

Deutsche Bank Predicts the US Will Tumble Into Recession in 2023 as the Fed Hikes Interest Rates Hard

Deutsche Bank has said it expects the US economy to fall into a recession in late 2023 as the Federal Reserve raises interest rates sharply, becoming the first major lender to make such a prediction. From a report: The bank's analysts, including chief US economist Matthew Luzzetti, said the Fed has historically triggered recessions when it hikes rates to deal with strong inflation. "A mild recession will be needed to take sufficient steam out of the economy and labor market to bring inflation back down," they wrote in a major report on the global economy, released Wednesday. Inflation has soared to a 40-year high in the US as demand has rebounded from coronavirus lockdowns, aided by government stimulus, but supply chains have remained snarled. The Fed has already raised interest rates by 25 basis points as it tries to cool borrowing and spending. But analysts say the hiking cycle has a long way to go, raising fears about economic growth. Deutsche expects the Fed to raise the federal funds rate by 50 basis points at each of the next three meetings, and thinks the rate will go above 3.5% next year. They said the Fed has only avoided inducing a recession when raising interest rates that hard on two occasions. On all other occasions, significant Fed rate hikes were followed within a year or two by recessions, they said.

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