(NewsNation) — The United States is set to slip into a mild recession next year as the Federal Reserve hikes up interest rates to combat high and widening inflation, Deutsche Bank said in a report on Tuesday.
“The U.S. economy is expected to take a major hit from the extra Fed tightening by late next year and early 2024,” the bank warned in a 68-page report titled “Over the Brink.”
Economists David Folkerts-Landau and Peter Hooper predict the Fed raising rates by 50 basis points at each of its next three meetings on its way to a peak above 3.5% by the middle of next year. The Fed’s current target for the federal funds rate is 0.25% to 0.5%, after it lifted off levels near zero last month.
The forecast is driven by inflation, with consumer prices rising at the fastest pace in 40 years, more aggressive interest rates and now the war in Ukraine.
Under the forecast, U.S unemployment will rise sharply to 4.9% in 2024. Unemployment claims in March were at 3.6%.
The predicted recession would allow inflation to get back toward the Fed’s target by the end of 2024, Deutsche Bank said.
“With the unemployment rate receding only slowly following the peak, inflation should continue to moderate, falling to the Fed’s 2% objective in 2025,” Deutsche Bank said.
Should Deutsche’s prediction come true and unemployment increases by 1.5 percent, about 8 million people will be out of work.