Analysts at Deutsche Bank believe that the US economy will enter recession next year on the back of higher rates by the Federal Reserve System (Fed).
“The US economy will take a big hit from additional Fed tightening in late 2023 and early 2024,” said Deutsche Bank economists David Folkerts-Landau and Peter Hooper. in a report titled Over the Brink (“Beyond”). In their opinion, the Fed will raise the key rate by 0.5 percentage points at the next three meetings, and by mid-2023 the rate will exceed 3.5%. The current target range for the federal funds rate is 0.25-0.5%.
In addition, by the end of next year, the Fed will reduce the amount of assets on its balance sheet by almost $2 trillion from the current $8.9 trillion, Deutsche Bank experts predict. For monetary policy, this is equivalent to another 3-4 rate hikes of 0.25 percentage points, economists are quoted by Bloomberg.
Deutsche Bank predicts that by the summer of 2023 the US stock market will fall by 20%, and the yield on 10-year US government bonds will rise to 3.3% at the end of this year. Unemployment in the United States in 2024 will jump to 4.9% from 3.6% in March, economists expect.
“Our forecast for a recession in the US next year so far differs sharply from the consensus,” the authors of the report admit. “But we believe that this will soon change.”