A recession in the U.S. is brewing as the Federal Reserve is taking a more aggressive stance on raising interest rates to clamp down on inflation, according to economists at Deutsche Bank.
With inflation at a 40-year high, they predict the Fed will raise interest rates by half a percentage point during the next three meetings in May, June and July. That’s in line with the Fed’s thinking, according to minutes from the latest meeting.
When the Fed raises rates, it becomes more expensive to borrow money since interest rates on mortgages, credit cards and other loans increase in tandem. By taking such action, the Fed hopes to slow down the economy without causing a recession.
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In this case, it’s going to be unavoidable, the economists said in a note published Tuesday.
The Fed’s actions will “likely to trigger a mild recession around late 2023,” the note said. “While this will eventually help to push inflation closer to target by the end of 2024, it will also come with a sharp rise in the unemployment rate.”
Deutsche is one of the first major banks to sound the recession alarm.
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