Joe Biden will struggle with a US recession ahead of the next presidential election and a possible rematch against Donald Trump, a major bank has predicted for the first time.
The Federal Reserve is poised to aggressively raise interest rates in an attempt to rein in the highest inflation in 40 years, but doing so will trigger a recession, Deutsche Bank economists say.
It is believed to be the first major bank to declare a recession in the world’s biggest economy as war in Ukraine adds to inflationary pressures.
A recession would be a blow to Mr Biden’s re-election hopes, with his presidency already on the rocks following a slump in approval ratings.
The next presidential election is in 2024, but Mr Biden’s party faces midterm defeat later this year.
Matthew Luzzetti, US economist at Deutsche, said aggressive Fed policy tightening “will likely tip the economy into a recession towards the end of 2023, helping bring inflation back towards target by the end of 2024”.
He said: “Inflation in the United States is currently at four-decade highs, and there are a number of reasons to believe that it will remain well above the Fed’s target unless the demand is significantly undermined.”
Meanwhile, the Eurozone is expected to stagnate, narrowly dodging an outright recession but joining the United States in a painful downturn.
Rising interest rates combined with the impact of the US crisis will force the Eurozone “to the point of stagnation in early 2024”.
The warning comes after one of the market’s most reliable recession signals flashed red last week.
The yield on two-year Treasuries – the US government’s debt – has exceeded those on 10-year bonds, a so-called “reversal” that has preceded every recession in the United States for the past 50 years.
This signals that investors expect the central bank to cut rates in response to a recession.
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This notice was published: 2022-04-05 18:42:34