A mild recession is likely to hit the US by the end of financial year 2022, economists at Nomura Holdings said as the Federal Reserve has raised interest rates to tame rising inflation.
“With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession starting in the fourth quarter of 2022 is now more likely than not,” Nomura economists Aichi Amemiya and Robert Dent wrote in a note on June 20.
“With monthly inflation through 2022 likely to remain elevated, we believe the Fed response to the downturn will initially be muted,” the Nomura analysts wrote in their note.
The economists noted that the rate hikes are likely to continue into 2023, but with a slightly lower terminal rate of 3.50 – 3.75 percent reached in February, compared to the previous forecast of 3.75 – 4.00 percent in March.
The financial rating agency has lowered its real GDP forecast for the US for this year to 1.8 percent from 2.5 percent earlier, while the projection for next year is seen declining one percent, from 1.3 percent growth earlier.
Persistent inflation and inflation-focused Fed are among key factors driving the downturn. Poor consumer sentiment and high food and energy prices have caused several distortions in the supply chain and have deteriorated the global outlook.
As the Fed has hinted at more rate hikes to control the spiralling inflation, Nomura says this will likely drive the economy into a mild recession.