US: Recession likely to be officially declared in the second half of 2023 – ABN Amro

Economists at ABN Amro have lowered their growth and inflation forecasts for the US, with a significantly weaker recovery in investment now expected. They see the US heading for a mild recession.

Fed to continue hiking interest rates aggressively

“We have halved our forecast for fixed investment to just 2.5% for 2022, down from 5% previously, and made a more modest downward adjustment for 2023 to 1.9% from 3.3% previously. Our expectation for stagnant consumption in H2 2022 remains broadly unchanged. This takes our overall GDP forecast for 2022 down to 1.7% from 2.2% previously, and to 1.0% from 1.3% previously.”

“We do expect the labour market to deteriorate on the back of softening demand, with unemployment expected to begin rising from Q4 onwards. Ultimately, we expect unemployment to rise c.1.5pp to around 5% by end-2023, with the NBER calling a recession perhaps in H2 2023.”

“Our base case remains for the Fed to raise rates in 50 bps steps in September and October, with 25 bps hikes expected in December and February – taking the upper bound of the fed funds rate to 4%.”

“Beyond the hiking cycle, we continue to expect the Fed to begin reversing course in the second half of 2023. Our base case is that the Fed cuts rates in four 25 bps steps in H2 2023, taking the upper bound of the fed funds rate to 3% by end-2023.”