Home News A worse-than-expected recession is approaching. Deutsche Bank has already announced its...

A worse-than-expected recession is approaching. Deutsche Bank has already announced its customers

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“We will have a major recession,” Deutsche Bank economists wrote in a report to customers.

The problem, according to the bank, is that although inflation may peak, it will take “a long time” to get back to the Fed’s 2% target. This suggests that the central bank will raise interest rates so aggressively that it will hurt the economy.

Why the coming recession will be worse than expected

Consumer prices rose 8.5% in March, the fastest pace in 40 years. “It simply came to our notice then [Sistemul federal de rezervă] will have to press the brakes even harder, and a deep recession will be needed to curb inflation, “Deutsche Bank economists wrote in a threatening report:” Why the next recession will be worse than expected expects ”.

History shows that the federal system “never managed to correct” even small deviations in inflation and the unemployment rate “without pushing the economy into a significant recession,” said Deutsche Bank, warning that the plague of inflation has returned and will remain. here for a long time ”.

Goldman Sachs: The recession is not inevitable

Goldman Sachs admits it will be “very difficult” to reduce high inflation and raise wages, but stresses that a recession “is not inevitable”.

“We don’t need a recession, but we probably need growth to slow to a somewhat below-potential pace, a path that increases the risk of a recession,” Goldman Sachs economists wrote in a report Friday night.

Likewise, UBS hopes that economic expansion will continue, despite the Fed’s shift to fighting inflation.

“Inflation is expected to fall below current levels and we do not expect a recession due to rising interest rates,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a report on Monday.

The war and Covid keep inflation under pressure

Deutsche Bank said the most important factor behind its more negative outlook was the likelihood that inflation would remain “persistently higher for longer than generally expected.”

The bank said several developments would contribute to higher-than-feared inflation, including a reversal of globalization, climate change, other supply chain disruptions caused by the war in Ukraine and Covid blockages in China, and future rising inflation expectations. will support real inflation.

If inflation remains high, the Fed will be forced to consider more dramatic interest rate hikes.

The Fed raised interest rates by a quarter of a percentage point in March, and President Jerome Powell acknowledged last week that a half-point increase is “on the table” at next week’s meeting.

“It is extremely tempting to take a slow approach, hoping that the US economy can be landed slowly in a sustainable way. This will not happen,” Deutsche Bank said. “Our view is that the only way to minimize the economic, financial and societal damage of prolonged inflation is to do the wrong thing.”

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