Deutsche Bank’s economists have warned that the U.S. will suffer a major recession next year. However, several other major investment banks, including Goldman Sachs and JPMorgan, are less pessimistic about the future outlook for the U.S. economy.
Deutsche Bank has predicted a deeper downturn than its previous forecast for the U.S. economy in a report to clients, published Tuesday.
The bank’s economists, including David Folkerts-Landau, group chief economist and head of research, explained in the report why the coming recession will be worse than expected. They described:
We will get a major recession, but our strongly held view is that the sooner and the more aggressively the Fed acts, the less longer-term damage to the economy there will be.
The report explains that it will take a long time before inflation falls back to the Fed’s goal of 2%. The authors warned that the central bank will likely engage in the most aggressive monetary tightening since the 1980s, which “will push the economy into a significant recession by late next year.”
The Deutsche Bank economists detailed: “We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time … This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction.”
Several other major investment banks, however, are less pessimistic than Deutsche Bank.
Goldman Sachs recently estimated there is a 35% chance of a recession in the next two years. While admitting that it will be very challenging to bring down high inflation, Goldman’s economists wrote in a report Friday:
We do not need a recession but probably do need growth to slow to a somewhat below-potential pace, a path that raises recession risk.
Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a report on Monday: “Inflation should ease from current levels, and we do not expect a recession from rising interest rates.”
Jacob Manoukian, JPMorgan’s head of investment strategy in the U.S., said this month that a recession in the near term is possible but not probable. Meanwhile, Bank of America chief investment strategist Michael Hartnett warned earlier this month that a “recession shock” is coming.
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