Deutsche Bank Forecasts U.S. Recession in 4th Quarter, Followed by Rate Cut

The U.S. will fall into a ahref=”https://www.theepochtimes.com/t-recession”>recession Deutsche Bank has released a new forecast that said the Federal Reserve will respond to a rate cut in quarter four of 2023.

After several developments on many fronts, the bank updated key economic projections last week in a research note.

Deutsche Bank reports that the Fed will raise the terminal fed funds rates to 5.625 percent. This is an increase from the previous estimate of 5.1 per cent. Economists pointed out persistent inflation pressures and better-than-expected data. They also noted continued resilience in labor markets.

Fed officials signalled in recent weeks that they might be more aggressive in raising money. Interest rates You can accomplish this by following these steps “sufficiently restrictive” Monetary position, especially after hot inflation data.

This, Deutsche Bank stated, supports its baseline projection for a “moderate recession” Instead of a soft land. The financial institution pushed back its timeline by a quarter: a recession to end 2023 and the first rate cut to begin 2024.

Jerome Powell, the Chairman of Federal Reserve Board speaks during a press conference that followed a Federal Open Market Committee meeting held in Washington on February 1, 2023. (Kevin Dietsch/Getty Images)

“Stronger growth momentum, stickier inflation, and a more aggressive Fed that will need to tighten financial conditions, support our baseline expectation for a moderate recession rather than a soft landing. That said, firmer near-term strength in the US economy suggests that the timing of a recession is likely to be delayed,” Deutsche Bank economists said in a note.

“We have maintained our view of a moderate recession, with real GDP [gross domestic product] declining roughly 1.25 percent from peak-to-trough over the course of Q4 2023 through Q2 2024 and the unemployment rate rising about 2 percentage points in total. Both of these would be close to the early 1990s recession and mild relative to history.”

The bank upgraded its inflation forecasts for this year due to broad-based price pressures as a result of the January consumer price index and producer price index reports.

Economists expect a decrease in core CPI and core personal consumption expenditures price index (PCE), which exclude volatile food and energy sector, to 3.2 percent & 3.3 percent respectively by the end of the year.

The second quarter of 2024 will see a peak in unemployment at 5.5 per cent.

The Fed’s is a better example. Survey of Economic Projections From December, there is a 0.5 percent increase in GDP, a 4.6% unemployment rate, a core PCE inflation rate of 3.5%, and a median fed fund rate of 5.1%.

Is there a Recession?

Many organizations and experts have delayed their recession forecasts until later in the year.

A new Survey Survey of economists conducted by the National Association for Business Economics, (NABE), revealed that almost half (48%) anticipate a recession this year. Nearly one-third of economists expect an economic recession in the April-to June quarter. A fifth think it will begin in the third quarter.

“Results of the February 2023 NABE Outlook survey continue to reflect significant divergence regarding the outlook for the U.S. economy,” Julia Coronado, President of NABE and founder MacroPolicy Perspectives LLC, stated in a statement. “Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy—ranging from recession to soft landing to robust growth.”

David Rosenberg, chief economist and strategist at Rosenberg Research warned in a series tweets last week that the country was heading towards a recession. He also dismissed claims of a rebound. “no landing” As a “hoax.”

“The ‘no landing’ narrative is the biggest hoax Wall Street economists have peddled since ‘global decoupling’ in 2008,” He Twitter: Posted. “Follow the leading indicators, not the Pied Pipers.”

He also alluded the minutes of the Federal Open Market Committee’s (FOMC), policy meeting this month that mentioned a recession four more times, the highest since June 2020.

According to a paperpdfThe former Fed Governor Frederic Mishkin co-authored this article. It is unlikely that the U.S. central banks will defeat inflation without further raising interest rates. This would lead to a recession.

“We find no instance in which a central-[bank] induced disinflation occurred without a recession,” The paper stated. “Even assuming stable inflation expectations, our analysis casts doubt on the ability of the Fed to engineer a soft landing in which inflation returns to the 2 percent target by the end of 2025 without a mild recession.”

Economists stated that the Fed will need tighter policy to reach its 2 percent inflation goal by 2025. However, Treasury Secretary Janet Yellen envisions a “soft landing,” This suggests that the central banks will not trigger a downturn but beat inflation.

“I see a soft landing as being a possible outcome, and the one that I hope we will be able to achieve,” Yellen said at a Briefing India on February 24. “The economy is fundamentally in good shape, and inflation is coming down if you measure it on a 12-month basis.”

Atlanta Fed Bank’s GDPNow model Estimate The first quarter’s growth is expected to be 2.8%, an increase from the previous 2.7 percent.

A growing number of Fed officials, including James Bullard, President of St. Louis Fed Bank, and Loretta Mester (Cleveland Fed Bank President), have been discussing a higher policy interest rate to secure a disinflation trend.

The markets are expecting a quarter-point rate rise at March’s FOMC meeting. However, the chances of a 50-basis point increase are increasing, according to data from the CME FedWatch Tool show.

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