Deutsche Bank has updated its recession forecast. The bank’s economists now see “an earlier and somewhat more severe recession” than previously forecast. “The Fed has embarked on a more aggressive trajectory, financial conditions have tightened sharply and economic data are showing clear signs of slowing,” the economists said.

Deutsche Bank recession forecast

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

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

However, Luzzetti explained in the note, “Since then, the Fed has embarked on a more aggressive trajectory, financial conditions have tightened sharply and economic data are showing clear signs of slowing down.” The Deutsche Bank economist continued:

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

The US Federal Reserve raised interest rates by 75 basis points last week – the largest hike since 1994.

In its mid-year report to Congress released on Friday, the Fed said: “The Committee is acutely aware that high inflation creates significant difficulties, particularly for those least able to bear the higher costs of essentials.” bear … The Committee’s commitment to restoring price stability – which is necessary to maintain a strong labor market – is unconditional.”

The economist at Deutsche Bank stated:

More tightening in financing conditions could easily bring recession risks forward to around the turn of the year, potentially short-circuiting the Fed’s tightening cycle.

He added: “However, higher inflation over this period would likely limit the Fed’s ability to cut rates to counteract the downturn. On the other hand, a more resilient economy in the near term with more persistent inflationary pressures would pose an upside risk to our Fed view.”

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

Others who have warned of an impending 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, US Treasury Secretary Janet Yellen told ABC News, “I don’t think a recession is inevitable.” Additionally, a Wall Street Journal poll showed economists have dramatically increased the likelihood of a recession. They now put it at 44% over the next 12 months, up from 28% in April and 18% in January, the publication reported on Sunday.

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

Kevin Helms

As an Austrian economics student, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.

photo credit: Shutterstock, Pixabay, WikiCommons

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