Cloudy With a Chance of Recession

In the wake of the first interest rate hike since 2018, Deutsche Bank became the first major bank to forecast a U.S. recession for next year. The report co-authored by the bank’s chief economist David Folkerts-Landau and former Fed official Peter Hooper finds that “the U.S. economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024.” The economists expect the federal funds rate to be gradually raised beyond 3.5 percent by the middle of next year, which would be at the upper limit of projections given by the Federal Open Market Committee last month. The median projection given by FOMC members for 2023 was 2.8 percent, up from the current target range of 0.25 to 0.5 percent.

While Deutsche Bank is the first major bank to forecast an imminent economic downturn, investors, both retail and professional, share the group’s gloomy outlook. According to a Bloomberg Markets Live survey conducted between March 29 and April 1, 48 percent of investors expect the U.S. to fall into recession next year. Another 21 percent expect the downturn to happen in 2024, while 15 percent of the 525 respondents expect the recession to come as early as this year.

With the pandemic still lingering, the Russian invasion of Ukraine putting additional pressure on already surging consumer prices and Chinese lockdowns potentially disrupting supply chains, the economic outlook is currently clouded by uncertainties. And where there is clouds, there’s often a chance of rain, or, in this case, a recession.