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Deutsche Bank Sees 5%-6% Fed Target Rate and Deep U.S. Recession

  • A significant recession by next year seems likely, it says
  • U.S. unemployment may rise several points, economists project
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WATCH: Former Fed Vice Chair Alan Blinder sees the “severe” supply shocks as stagflationary.Source: Bloomberg

The Federal Reserve is likely to need to engage in the most aggressive monetary tightening since the 1980s to tamp down an inflation rate at a four-decade high, which will lead to a deep U.S. recession next year, Deutsche Bank AG economists warned.

“We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time,” the authors including David Folkerts-Landau, group chief economist and head of research, wrote in a report Tuesday. “This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction, which our U.S. economics team estimates will be equivalent to a couple additional 25 basis-point rate hikes.”