Deutsche Bank becomes first to predict 2023 U.S. recession as fed increases rates

On Tuesday, economists at Deutsche Bank predicted that the U.S. will fall into recession as the Federal Reserve, the Central Bank in the nation, will continue to increase increase rates. However, economists David Folkerts-Landau and Peter Hooper term it to be a “mild recession” in 2023 while other major banks and financially institutions are not as yet convinced that there would be a recession but speak of economic slowdown. The fed has to boost rates to fight high and widening inflation.

In a report titled “Over the Brink” the bank’s economists say that the U.S. economy will be strongly hit as the Fed could continue with strict measures late 2023 and early 2024 leading to a recession. They also estimate that unemployment in the nation will increase to 4.9 percent from its current low of 3.6 percent. This low percent is almost at pre-pandemic levels and indicates that the economy is bounding forward, despite high inflation.

The team from Deutsche Bank acknowledged that their prediction of a recession is not consensual among other banks and financial institutions but they believe that it could soon become a consensus.

Other banks and financial institutions do not paint such a bleak picture though they accept that there will be a slowdown. Goldman Sachs, JP Morgan and Moody’s estimate that there would be a slowdown but fall short of predicting a recession, at this time.

High food and petrol costs post pandemic due to supply chain issues, plus the war in Ukraine as well as the sanctions in Russia will remain contributory factors and could increase inflation in the future. The recent shutdown of Shanghai, as a result of China’s Zero Covid policy will also exacerbate supply chain issues.

Amid all these conflicting issues, Fed Chair Jeremy Powell remains optimistic. Last month, he spoke of fighting inflation by raising rates, without causing a recession. He gave examples of how this has been achieved in the past by the U.S. in 1965, 1984 and 1994.

If Deutsche Bank economists prove to be correct the U.S. will face a mild recession. If the Fed and other major banks’ positive approach proves to be right, then the nation will face a slowdown but avoid recession.

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