Deutsche Bank Expects Sooner, More Severe US Recession as the Fed Takes 'Aggressive Hiking Path'

Deutsche Bank Expects Sooner, More Severe Recession as the Fed Takes 'Aggressive Hiking Path'

Deutsche Bank has updated its recession forecast. The bank’s economists now see “an earlier and somewhat more severe recession” than previously predicted. “The Fed has undertaken a more aggressive hiking path, financial conditions have tightened sharply and economic data are beginning to show clear signs of slowing,” said the economists.

Deutsche Bank’s Recession Forecast

Deutsche Bank’s chief U.S. economist, Matt Luzzetti, explained in a note to clients Friday that a recession will come sooner and it will be more severe than previously predicted, Yahoo Finance reported.

The bank said in April that the U.S.economy will be in a “major” recession by the end of next year.

However, Luzzetti explained in the note: “Since that time, the Fed has undertaken a more aggressive hiking path, financial conditions have tightened sharply and economic data are beginning to show clear signs of slowing.” The Deutsche Bank economist continued:

In response to these developments, we now expect an earlier and somewhat more severe recession.

The Federal Reserve raised its benchmark interest rate by 75 basis points last week — the biggest increase since 1994.

In its semi-annual report to Congress released Friday, the Fed said: “The committee is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials … The committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional.”

The Deutsche Bank economist noted:

A more severe tightening of financial conditions could easily pull forward recession risks to around the turn of the year, which could short-circuit the Fed’s tightening cycle.

He added: “That said, higher inflation during that period would likely constrain the Fed’s ability to cut rates to counteract the downturn. On the other side, a more resilient economy in the near-term with more persistent inflation pressures would spell upside risk to our Fed view.”

Earlier this month, the World Bank warned of a global recession. “For many countries, a recession will be hard to avoid,” said President David Malpass.

Others who have warned of an incoming recession include Tesla CEO Elon Musk, Citigroup CEO Jane Fraser, Soros Fund CEO Dawn Fitzpatrick, The Big Short investor Michael Burry, and Rich Dad Poor Dad author Robert Kiyosaki.

On Sunday, U.S. Treasury Secretary Janet Yellen told ABC News, “I don’t think a recession is at all inevitable.” In addition, a survey by the Wall Street Journal showed that economists have dramatically raised the probability of recession. They now put it at 44% in the next 12 months, up from 28% in April and 18% in January, the publication reported Sunday.

What do you think about Deutsche Bank’s forecast? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.