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Wednesday, July 6, 2022
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Recession Could Come Sooner and Be More Severe


Facade on the Federal Reserve Building in Washington DC | Image by Paul Brady/Shutterstock

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More financial institutions and economists are warning a recession could be on its way.

Aichi Amemiya and Robert Dent, economists with Japanese financial group Nomura, wrote in a client note on Monday:

“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,” per Money Control.

In recent months, the Federal Reserve has charted an indefinite path of interest-rate hikes in a bid to tackle skyrocketing inflation. While this strategy may still bear out, economists believe it could come at the cost of tipping the country into recession.

Deutsche Bank was the first major institution to forecast a recession in the United States back in April, as reported by The Dallas Express, but it dated the onset to the end of 2023. It has since revised its projection in light of the Fed’s aggressive interest rate hikes, predicting significant economic contractions will begin in the first half of 2023.

“Since [April], the Fed has undertaken a more aggressive hiking path, financial conditions have tightened sharply and economic data are beginning to show clear signs of slowing. In response to these developments, we now expect an earlier and somewhat more severe recession,” wrote Deutsche Bank economist Matt Luzzetti in a client note obtained by Yahoo Finance.

Citigroup economist Nathan Sheets echoed Luzzetti’s assessment in his note to clients, writing, “The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%.”

Fed Chairman Jerome Powell reiterated his commitment to interest rate hikes, telling Congress on Wednesday that the Fed is “strongly committed to bringing inflation back down” and that, if inflation does not slow down, “ongoing [benchmark interest] rate increases will be appropriate,” per CNBC    

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