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

“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.”

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.

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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.