As the Federal Reserve begins its long-awaited program of tapering bonds as it seeks to tame hyperinflation, the clock is ticking as the United States may experience another recession.
Or so say the strategists at Deutsche Bank.
The investment bank expects the Federal Reserve to accelerate its bond purchases in 2022 (and then quickly), opening the door for the first rate hike in this economic cycle as early as March.
With this first rally and the end of the tapering program – and the consequent tighter lending terms – strategists believe the economy will begin to calm after 2024. Then, recession risks will creep into the economic picture for the first time since the pandemic began.
“The mean and median time for the next recession is 37 and 42 months after the first rally. This takes us to July 2025 and December 2025 respectively. The first gap over 13 cycles is 11 months which will take us to May 2023,” explains the Deutsche strategist Jim Reed Bank.
However, Reid acknowledges that past performance in slack periods is not indicative of future performance.
“Obviously every cycle is different and many (including me) would argue that the Fed is really behind the curve and therefore should have really tightened policy. And that could mean a more compressed cycle for history. Rather, as we saw in the mid-1960s In the past, with the Fed making a mistake by keeping policy too loose, they delayed the final recession to late 1969, but left us with an inflation problem that created major economic problems in the 1970s and then exacerbated the energy shock trade-off However, at this point, History may suggest that a recession in the US in 2024 or 2025 is a realistic assumption. It could come earlier but that would assume the early end of the historical model,” says Reed.
The latest recession, according to the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), began in February 2020 as the COVID-19 pandemic hit the global economy. Technically, the recession ended in April 2020 according to the National Bureau of Economic Research. While it was a deep recession, the two-month recession was the shortest on record.
Not everyone on the street is on board with a looming recession just because the Fed starts raising interest rates.
“We still have a real policy rate that will be negative. Real rates will be supportive and Fed policy will be appropriate for some time, even if it is not buying mortgage-backed securities and Treasuries,” said RSM’s chief economist in the US. Joseph Brosolas on Yahoo Finance Live. “The economy is booming.”
Brian Suzy It is a comprehensive editor and Announcer at Yahoo Finance. Follow Suzy on Twitter Tweet embed and on LinkedIn.
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