Another major international bank predicts a recession in the United States

Topline

Japanese investment bank Nomura on Monday became the latest bank to predict a looming recession in the US economy later this year, joining Deutsche Bank and Morgan Stanley, just days after the Federal Reserve announced a sharp hike interest rates in an effort. control surprisingly high rates of inflation.

Highlights

According to multiple media outlets, economists at Nomura have warned that a “mild recession” towards the end of 2022 is now more “likely” due to recent Fed actions.

Nomura economists added that inflation is expected to “stay high” through 2022 and projected the US economy is expected to contract 1% next year, compared to an earlier forecast for growth of 1. 3%.

On Friday, Deutsche Bank – the first bank to predict a coming recession at the end of 2023 – updated its forecast by noting that it now expects an “earlier and somewhat more severe recession”, predicting a contraction of 3 .1% of GDP in the third quarter of 2023. .

Two days before the Federal Reserve’s rate hike, Morgan Stanley CEO James Gorman sounded slightly more optimistic, putting the odds of a slowdown at “50-50”, adding that a “deep or long recession” was unlikely.

In a recent note, the chief economist at Moody’s Analytics warned that recession risks were “uncomfortably high” and “rising”, and said avoiding such a situation would require “very skilful policy on the part of the Fed and a bit of luck”.

In a note released in April, economists at Goldman Sachs predicted a 35% chance of a recession over the next 24 months, but implied the risk increased following the Fed’s recent rate hike.

Contra

Despite economists’ projections, President Joe Biden, in an interview last week, insisted that a recession was not “inevitable”, adding that the United States was in a “stronger position” than any other country to fight inflation. Biden added that the American people shouldn’t “believe a warning” and urged him to wait and see which prediction is correct.

Key Context

On Wednesday, the Federal Reserve raised interest rates by 75 basis points to a target range of 1.5% to 1.75%. Last week’s move was the biggest rate hike taken by the regulator in 28 years as it sought to tackle soaring inflation. The Fed’s sharp rate hike came after the Labor Department released data showing that annual inflation in the United States jumped to 8.6% in May, the largest increase in consumer prices on 12 months that the country has known in more than 40 years. Goldman Sachs has warned clients that it expects another 75 basis point hike in July.

Further reading

Major bank first to predict recession – others may follow (Forbes)

US recession this year now more likely than not: Nomura (Bloomberg)

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