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Aussie bank tips 'mild' recession on the cards for US in 2023

 — 1 minute read

An Aussie bank is tipping that the US economy will enter a “mild” recession in 2023.

With inflation currently the number one enemy for the US economy, the Commonwealth Bank (CBA) has warned that the US Federal Reserve will continue to raise interest rates expeditiously in coming months causing a material deceleration in the economy.

CBA expects the Federal Reserve’s funds rate to peak at 3.5 to 3.75 per cent in early 2023 and warned that “the FOMC does not have a good record of engineering a ‘soft economic landing’.”

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As such, the bank’s chief economist Stephen Halmarick predicted the US economy will enter a “mild recession in 2023”.

“Over 2022 we expect the US economy to expand by 1.3 per cent and by only 0.4 per cent in 2023.”

The idea, the CBA’s economist explained, is that while the Fed will need to tighten monetary policy into restrictive territory to ensure that inflation heads back towards its 2 per cent target, effectively stalling the economy, once it gets on top of the surge in inflation, it can start easing monetary policy “relatively quickly”.

“After peaking at 3.5 to 3.75 per cent in the first half of 2023, the Fed is likely to start rate cuts in late 2023 and through 2024,” Mr Halmarick said.

As such, the CBA has the Fed Funds target rate back at 2.25 to 2.5 per cent by the end of 2024.

Turning to Australia, the economist reiterated the bank’s expectations for the local economy following the Reserve Bank’s (RBA) decision to get the monetary policy tightening path underway in May, which saw the bank tweak its profile for the cash rate.

Namely, the CBA now expects a further 50-basis point (bp) rate hike in July, followed by 25-bp rate hikes in August, September and November that will see the cast rate target at 2.1 per cent by the end of 2022.

In its latest GDP growth forecast, the bank placed local economic growth at 3.5 per cent in 2022 and a below-trend 2.1 per cent in 2023. Headline inflation is predicted to peak at 6.25 per cent in 2022 before falling back with the RBA’s target band of 2 to 3 per cent by late 2023.

The unemployment rate is forecast to stay at a very low 3.75 per cent over 2022, but CBA anticipated it will edge higher over 2023 to 4.5 per cent amid below trend growth.

Aussie bank tips 'mild' recession on the cards for US in 2023

An Aussie bank is tipping that the US economy will enter a “mild” recession in 2023.

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Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.

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