The US is on track for its first 'policy-led boom-bust cycle' in four decades - with a recession setting in by year-end, Deutsche Bank says

• The US is facing a Fed-fueled recession that'll hit the economy by year-end, Deutsche Bank said.
• The nation is "on track for its first genuine policy-led boom-bust cycle in four decades," top researches said.
• Analysts said they expect downturn to be "milder" but inevitable, as core inflation remains too high for comfort.

The US is on track for the first recession fueled by Federal Reserve policy in four decades, and it will hit the economy by year-end, according to Deutsche Bank.

The German bank's prediction mirrors bearish forecasts from other experts including David Rosenberg, who has said a recession has already hit the world's largest economy but nobody's noticed.

The US is "on track for its first genuine policy-led boom-bust cycle in four decades," triggered by the Fed's ultra-easy money policy during 2020-2021, Deutsche Bank's top economists said in a research note on Monday. That unleashed "high inflation and an aggressive policy response," Jim Reid and David Folkerts-Landau said.

"We always thought it would take until the latter part of 2023 for this to materialise and although there is a risk it is delayed until H1 2024, we continue to believe it starts in Q4 2023," they added.

The coming downturn, however, is expected to be an "earlier and milder" one, Reid and Folkerts-Landau said.

Recession fears have increased in recent months as high interest rates and a wave of banking-sector turmoil add to the stress on the economy. The US central bank has boosted benchmark borrowing costs by 500 basis points since early 2022 to combat inflation that hit forty-year highs last summer.

Deutsche Bank expects the Fed to continue increasing rates. "The rate hiking cycle is not over yet," Reid and Folkerts-Landau said.

"Core inflation is proving too high for comfort and recessionary conditions may be the only way of returning it to target," the added.

A tightening of credit conditions in the economy following the recent banking-sector instability will also set the stage for a recession, Deutsche Bank said in an earlier forecast.