Moneycontrol PRO
Upcoming Webinar:Watch a panel of experts discuss: Challenges of continuously evolving regulation for Cryptocurrency, on 7th July at 3pm. Register Now
you are here: HomeNewsBusiness

US likely to fall into recession by end of 2022: Nomura

Despite the Fed’s significant hawkish pivot since November 2021, inflationary pressures have not eased meaningfully and may have arguably worsened, said Nomura in its note dated June 20.

June 20, 2022 / 04:12 PM IST
Representative image

Representative image

The US economy will likely fall into a mild recession by the end of 2022 as the Federal Reserve raises rates to tame prices, according to economists at Nomura Holdings Inc.

“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.

Also Read: US consumer price inflation accelerates to 40-year high of 8.6% in May

Nomura warns that financial conditions will tighten further as consumer sentiment is souring, energy and food supply distortions have worsened and the global growth outlook has deteriorated.

“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.”

Close

They expect ongoing rate hikes 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.

Nomura has lowered its real GDP forecast for this year to 1.8 percent, compared to 2.5 percent earlier, while the projection for next year is seen declining one percent, from 1.3 percent growth earlier.

The persistence of inflation and a single-mandate Fed are among the factors that are driving the downturn, according to the financial services company.

From a very high level, the ongoing persistence of elevated inflation and growing evidence of unanchored inflation expectations are the two key drivers of our expected growth downturn.

Also Read: Explainer | Recession: What is it all about? Let's count the ways

Despite the Fed’s significant hawkish pivot since November 2021, inflationary pressures have not eased meaningfully and may have arguably worsened.

Against that backdrop, Nomura analysts believe that the Fed’s efforts to realign demand with depressed supply to rein in price pressures will ultimately drive the economy into a mild recession. Fed officials have been unequivocally clear they will prioritise price stability, the frequently cited “bedrock” of the institution, above all else.
Moneycontrol News
first published: Jun 20, 2022 04:12 pm
Sections
ISO 27001 - BSI Assurance Mark