April 7, 2022 · less than 3 min read
It is the first major bank to sound the alarm.
A rock and a hard place
Navigating the post-Covid economic recovery was always likely to be a mammoth challenge for the Fed’s monetary brains. The extra cash pumped into the economy throughout the Global North may have kept some businesses, and people, afloat, yet it’s also played a role in pushing inflation higher and higher.
But trying to cool rising prices would quickly see policymakers responsible for ending a short-lived recovery. Not every problem has a fair solution, and according to Deutsche, the Fed’s light-touch approach just hasn’t cut it.
Fed Governor, Lael Brainard, said words to the same effect, and quickly spooked the markets. Forecasting a rapid reduction of the Fed’s balance sheet and a sterner rise in interest rates, she stated this week, “I think we can all absolutely agree inflation is too high and bringing inflation down is of paramount importance”.
Reading the room
It’s not just Brainard – and Deutsche – seeing the signs. A recent inversion of US Treasury yields hinted at the same conclusion: There’s a recession ahead. So, if things really are heading south, what can we expect from the gathering clouds?
As always, not everyone agrees on the outcome, but the rough consensus is that it’s likely to be only a ‘mild’ recession. Or at least, that’s what Deutsche says. Different analysts are seeing different numbers, but as is often the case, getting the right policies in place at the right time can make all the difference when it comes to moderating the severity of a downturn.
The noise around a future recession is only getting louder, so it might be time to strap ourselves in.
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