One of the world’s largest investment banks is warning that the Federal Reserve System’s efforts to lower inflation will likely trigger a recession throughout the U.S. in 2023.
Deutsche Bank released a report Wednesday forecasting that the Federal Reserve’s decision to hike interest rates will push the economy into a tailspin.
“We anticipate that a more aggressive tightening of monetary policy will push the economy into a recession,” wrote Deutsche economist Matthew Luzzett.
The bank is predicting a “mild recession” starting next year that will increase the unemployment rate to 5%, up from 3.6% as of last month. That assessment is subject to change depending on domestic and global circumstances, according to Deutsche economists.
Deutsche is the first major international organization to warn of an impending recession. It comes as the Federal Reserve raised a key interest rate last month and signaled that six more hikes are planned for this year.
“We are attentive to the risks of further upward pressure on inflation and inflation expectations,” said Federal Reserve Chairman Jerome Powell. “The [Federal Reserve] is determined to take the measures necessary to restore price stability.
The interest rate hikes are the first since 2018. They will result in consumers paying more in interest on credit cards, as well home equity and auto loans.
The rate increases come in response to inflation soaring by 7.9% over the last year. Overall, prices have skyrocketed at the fastest rate in more than 40 years.
Gasoline prices jumped by 6.6% since last year. Food costs rose 1% last month — the largest monthly increase since April 2020. The hike in food prices was double the 0.5% increase reported in December.
Republicans and some economists contend that President Biden’s policies are to blame for rising inflation. They note that the White House’s $1.9 trillion coronavirus relief package, signed into law in 2021, flooded the economy with excess money at a time when the nation was facing a supply chain crisis.
“Even liberal economists like the Obama White House’s Larry Summers warned that Biden’s big spending spree would set off inflation,” said Sen. Mike Braun, Indiana Republican.
Democrats disagree that Mr. Biden’s massive coronavirus relief bill is the culprit. They say the supply chain crisis started long before Mr. Biden entered the White House and other factors, like corporate greed, are at play.
“There is more to these price spikes — some businesses are simply price gouging consumers,” said House Energy and Commerce Committee Chairman Frank Pallone of New Jersey. “These outrageous actions have been constant throughout the pandemic, evolving with each phase and disproportionately harming the most vulnerable when they can least afford it.”
• Haris Alic can be reached at halic@washingtontimes.com.
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