Deutsche Bank Analysts Forecast US Recession in 2023-2024 Amid Fed's Decisions

The US Federal Reserve previously broke away from its long-term strategy of keeping the rate at near zero, raising it to 0.25 percent to 0.5 percent range in February in an attempt to cope with historically high inflation in the country.

The American economy might face a recession by the end of the next year because of the Federal Reserve's decision to raise interest rates, Deutsche Bank economists have forecast in their 'Over the Brink' report. The economists expect the Fed to raise the rates by 0.5 percent for the next three meetings and eventually take it from the present range between 0.25 percent and 0.5 percent to 3.5 percent by the middle of 2023.

The bank's analysts also forecast that the Federal Reserve's balance sheet will lose around $2 trillion by 2024 out of a total of $8.9 trillion. This will have the effect of another interest rate rise equivalent to 1 percent, they added.

"The US economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024," the analysts said.

The Fed's policy will result not only in a contraction of the American economy, but also in an increase to unemployment from the present 3.6 percent to almost 5 percent in 2024, the economists projected. The report further forecasts a "transitory decline of the order of 20 percent" for the American stock market by the middle of 2023.

The economists admitted that their forecast is more dire than most other economic predictions, and noted that the economic decline is "far from inevitable", but expressed confidence that other analysts will correct their predictions as well.

"Our call for a recession in the US next year is at present way out of consensus. We expect it will not be so for long," the economists said.

The grim forecast comes after the Federal Reserve decided to tighten its fiscal policy after years of maintaining the interest at near zero. In February, it raised the rate to the 0.25 percent to 0.5 percent range and expressed readiness to do it again if it's needed to combat rampant inflation in the country. The US registered inflation of 7.9 percent in February 2022 – a 40-year high with fuel prices remaining among the leaders of price growth.

The latest polls suggest that US President Joe Biden's low ratings can partly be attributed to his failure to tackle the record inflation in the country.

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