The Fed may need to move more aggressively, warns Deutsche Bank

With household liquidity in the US overdue, the Federal Reserve may need to move more aggressively to raise interest rates to “cool” the economy and curb high inflation, according to Deutsche Bank .

US household liquidity “now’s exceeding debt for the first time in three decades with net debt falling to zero,” said Jim Reed, head of research at Deutsche Bank, in a report released Wednesday. “The Fed may need to go even further in order to curb consumer demand and curb price increases,” he said.

Investors also expect the Federal Reserve to become more aggressive in raising interest rates as it struggles to cope with galloping inflation that has been hovering for nearly four decades.

Deutsche Bank warns that the risk of recession lurks even if the liquidity of American households exceeds their debt.

“While negative net debt is a sign of comfort, we had seven recessions between the early 1950s and the early 1980s, which were also negative,” Reed said in a report. inevitable until the end of 2023 / beginning of 2024, after an aggressive series of increases in Fed interest rates over the next 18 months “, he adds.

Meanwhile, high inflation and rising interest rates have also affected stock markets, with Deutsche Bank warning in a separate report that “in 2023, we expect stock markets to perform well over the summer. “As a result, stocks are likely to correct by a typical 20% at the beginning of the year, before they see the bottom and return to previous levels,” he said.

Deutsche Bank analysts maintain the target price for the S&P 500 index at the end of 2022 at 5,250 points, according to the report.