According to Yahoo Finance, Deutsche Bank’s senior U.S. economist, Matt Luzzetti, stated in a letter to clients on Friday that a recession will occur sooner and be more severe than previously forecast.
In April, the bank predicted that by the end of next year, the US economy would be in a “major” recession.
“Since that time, the Fed has embarked on a more aggressive hiking path, financial conditions have tightened substantially, and economic statistics are beginning to show unmistakable signs of slowing,” Luzzetti wrote in the report. The economist from Deutsche Bank went on to say:
We now foresee an earlier and more severe recession as a result of these changes.
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.