US economy will tumble into a recession in 2023 as Federal Reserve jacks up rates, Deutsche Bank says
- The Federal Reserve may raise rates by 50 basis points at each of its next three meetings on its way to a peak above 3.5 per cent by the middle of next year
- Deutsche forecasts the Fed to reduce its US$8.9 trillion balance sheet by almost US$2 trillion by the end of 2023, equal to three or four additional 25- basis point hikes
The US will tumble into a recession next year as the Federal Reserve jacks up interest rates to combat high and widening inflation, Deutsche Bank economists David Folkerts-Landau and Peter Hooper said in a report on Tuesday.
They see the Fed raising rates by 50 basis points at each of its next three meetings on its way to a peak above 3.5 per cent by the middle of next year. The Fed’s current target for the federal funds rate is 0.25 per cent to 0.5 per cent, after it lifted off levels near zero last month.
Deutsche Bank is one of the first major banks to forecast a US recession. Goldman Sachs Group economists led by Jan Hatzius said in a report on Monday that an economic downturn was “far from inevitable,” in part because consumers and companies are “flush” with cash.
“Our call for a recession in the US next year is currently way out of consensus,” Folkerts-Landau and Hooper acknowledged in their report, adding, “We expect it will not be so for long.”