Connect with us

International

Deutsche Bank: The United States faces a political recession

Deutsche Bank: The United States faces a political recession

 


In April last year, just a month after Russia invaded Ukraine, Deutsche Bank became the first major investment bank to predict a US recession. Less than a month later, its economists have upped the ante on their forecast, arguing that a major recession will hit by the end of 2023 or the first quarter of 2024 due to rising interest rates and stubborn inflation.

But since then, the economy has remained surprisingly resilient, even amid constant headwinds. The unemployment rate remained near pre-pandemic lows at 3.7% in May and GDP jumped 1.1% in the first quarter. The stock market is also on fire after a dismal 2022, with the S&P 500 up more than 12% year-to-date as investors flock to AI coins.

Yet, despite recent positive news, the great minds at Deutsche Bank continue to believe that a recession is inevitable after the Federal Reserve’s historic policy shift.

The United States is on track for its first real political boom-bust cycle in four decades, led by a significant increase in the money supply in 202021, triggering high inflation and an aggressive policy response, the official said. of global economy and thematic research at Deutsche Bank. , Jim Reid, and chief economist, David Folkerts-Landau, wrote in a research note on Monday. Next up is the US recession that we first predicted early last year.

For more than a decade after the global financial crisis, Fed officials sought to spur economic growth by keeping interest rates near zero and instituting a policy called quantitative easing (QE) where they would buy bonds government and mortgage-backed securities to increase the money supply and stimulate lending and investment in the economy. When the pandemic hit, they doubled down on these so-called easy money policies to help prevent economic disaster. But Reid and Folkerts-Landau argue that this decision prepared the United States for a disastrous period of inflation and a cycle of boom and bust.

The Fed’s easy money policies, along with broken supply chains and stimulus programs, have helped exacerbate rising inflation in 2021, according to Deutsche Bank, and forced Fed officials to raise interest rates from near zero to a range between 5% and 5.25. % over the last 15 months. Reid and Folkerts-Landau argue that consumers and businesses are struggling to cope with the rising cost of borrowing that accompanies these aggressive rate hikes.

After 1015 years of zero/negative rates and near-continuous QE, businesses, consumers and investors are far from fully adjusting to the recent rate shock, they wrote, arguing for more financial crashes like what happened with US regional banks in March, when Silicon Valley Bank and several others collapsed, remain a big risk as interest rates rise.

The pair explained that another financial crash would lead to further loan cuts and crush the animal spirits of investors who have been lifted by AI lately, accelerating a recession and market downturn. Famous British economist John Maynard Keynes coined the term animal spirits in 1936 to describe how investors and consumers are often driven by emotion rather than logic, especially in the short term, which can cause them to be spooked by bad economic data.

Reid and Folkerts-Landau also believe the Fed may be forced to raise interest rates up to three more times to tackle core inflation, which rules out volatility in food and oil prices. energy. The Fed’s favorite gauge of core inflation, the Personal Consumption Expenditure (PCE) index, rose 0.4% from March to April, well above its 0.1 rise. % the preceding month. And year-over-year, prices rose 4.4% in April, compared to 4.2% in March.

Core inflation is proving too high for comfort and recessionary conditions may be the only way to bring it back to target, they wrote.

While some investment banks now argue that a strong labor market will prevent a major recession from hitting the U.S. economy, Folkerts-Landau and Reid pointed out that the financial models that many banks use to predict recessions are not always reliable, which means consumers and investors need to be on their guard. .

The problem with predicting recessions is that model-based forecasts rarely predict them in advance, they wrote. On the rare occasions when recessions are predicted, mild downturns tend to be the worst the models can generate. So if we do get a hard landing, don’t expect the models to predict it in advance.

Sources

1/ https://Google.com/

2/ https://fortune.com/2023/06/05/recession-forecast-deutsche-bank-policy-led-boom-bust-cycle-federal-reserve-inflation/

The mention sources can contact us to remove/changing this article

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos

ExBUlletin

to request, modification Contact us at Here or [email protected]