Storm warning for the US economy? Growth there appears to be threatened, among other things, by the Federal Reserve’s (Fed, Uncle Sam’s central bank) tightening of monetary policy in the face of runaway inflation at historically high levels. And the inversion of the interest rate curve on the other side of the Atlantic (short-term rates exceed long-term rates, an anomaly, while most of the time the opposite occurs), which historically preceded episodes of recession of the last decades. , reinforces fears of a sharp slowdown in the US economy.
Deutsche Bank is sounding the alarm in this regard. It is one of the first large major banks to expect the US economy to slip into recession in the medium term. In fact, he says he doesn’t think the Fed will succeed in bringing growth to a soft landing. Rather, it is the likely aggressive tightening of its monetary policy that should push the economy into recession, according to Germany’s leading private bank.
It must be said that soaring energy and food prices, exacerbated by the fallout from the war in Ukraine, have pushed consumer price inflation (inflation) to 40-year highs, even though the Fed is forced to act forcefully to fight against the erosion of the purchasing power of households, which risks weighing on consumption. Still, a tightening of the Fed’s monetary policy should, by increasing the cost of credit, also weigh on household demand. But reconnecting with consumer price stability is at this price, Judge Deutsche Bank.
According to the German bank, a recession, the extent and timing of which are subject to “considerable uncertainty”, could occur between the end of 2023 and the beginning of 2024. If this recession could be small-scale according to him, however accompanied by a significant number of layoffs.
Deutsche Bank’s pessimism is shared by many renowned establishments, such as the rating agency Moody’s, or the banks JPMorgan Chase and Goldman Sachs. For these institutions, the risk of recession has increased. And this, at an “uncomfortably high” level, for Moody’s, which judges that stagflation (slow growth and high inflation) is a “real threat”. And for Goldman Sachs, the 1970s, marked by rising consumer prices and a shock to growth, is “the clearest example” of the environment investors face today.
This year and into 2023, equity markets should therefore closely scrutinize the risk of a recession in the US, a specter that could be accompanied by some volatility for the stock market.
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