Deutsche Bank’s chief US economist Matt Luzetti believes that the more aggressively the Fed resists the downturn in the markets, the more limited its ability to cut rates will be.
Matt Luzzetti said the recession will come earlier and be more severe than previously predicted. Earlier, the bank reported that the US economy will face serious problems only by the end of next year. However, now the expert explained that since the last forecast, the US Federal Reserve System (FRS) has taken more aggressive steps.
Financial conditions have tightened sharply, Luzetti said, with economic data showing clear signs of a slowdown. In response to these developments, the bank issued an update to its outlook.
Last week, the Fed raised its benchmark interest rate by 75 basis points, the largest increase since 1994. In its semi-annual report to Congress, the agency said high inflation was creating significant hardship, especially for those least able to meet higher spending on essentials. However, the Fed intends to restore price stability in order to support the labor market.
“More severe tightening of financial conditions could easily shift recession risks to around the end of this year, which could lead to more aggressive Fed action. However, higher inflation over this period is likely to limit the Fed’s ability to cut rates to counteract the downturn,” Luzetti said.
Earlier, Sam Bankman-Fried, CEO of the FTX cryptocurrency exchange, said that the Fed’s fiscal tightening is the main driver of the recession in the cryptocurrency markets.
Source: Bits
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