Recession ‘more likely than not’ if interest rates continue to rise

Bank of England increases interest rates to 5.25%

Experts are warning that a “recession remains more likely than not” despite inflation improving on both sides of the Atlantic.

A recession is considered to have happened when a country experiences two-quarters of negative economic growth.

So far, both the US and UK have avoided this situation but other G7 economies have not been so lucky, namely Germany.

Over the past year, interest rates have been raised by central banks in an attempt to rein in soaring inflation.

However, inflation in the US remains higher than the Federal Reserve’s two percent target which has led to leading banks to continue to forecast for a likely recession.

Read more… Stock market plummets as recession fears grow[LATEST]

In a note, Deutsche Bank analysts broke down their concerns about the likelihood of more interest rate hikes to come.

The financial institution’s own analysts explained: “A US recession remains more likely than not.

“Given that inflation peaked significantly above target, the Fed should err on the side of tightening too much, rather than too little.

However, this statement from Deutsche Bank contrasts with recent comments from other financial institutions.

Don’t miss…
Euro and sterling tank as dollar ‘flexes its muscles’ UK and EU struggle[LATEST]
Bank launches top-paying fixed rate ISAs[LATEST]
Housing cost worries hit record high level among homeowners and renters[LATEST]

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Many other banks have revised or pushed back on their previous predictions of a recession in the US within the next year.

For example, analysts from Goldman Sachs rolled back on their previous forecast of an economic downturn earlier this week.

The bank further reduced their 12-month US recession probability to 15 percent from a previous 20 percent estimate.

Ray Black from Money Minder added: “Assuming interest rates stay at the current level for the foreseeable future, or perhaps even continue to rise, large, developed economies in the US, Europe and the UK are at a high risk of recession.

“While the UK stock market looks really good value at present, it’s important to be invested in companies that have low debt piles, reasonable profit margins and higher paying dividends that can potentially cope with increasing production costs that they are able to pass onto their customers.”

As it stands, the Bank of England’s base rate is sitting at 5.25 percent, while the Federal Funds Rate is at a range between five to 5.25 percent.

The Federal Open Market Committee (FOMC) is next set to meet to discuss US interest rates on September 19-20.

Source: Read Full Article