Higher interest rates could lead to a mild but prolonged recession in the United States

The recent rise in interest rates by the US Federal Reserve will push the economy into a mild but protracted recession. This is what analysts at investment bank Nomura predict. They expect the US economy to shrink in 2023.

In a report released earlier this week, Nomura analysts predict that the recession in the United States will begin in the last quarter of this year. Following that, mild contraction is expected to continue for six quarters.

Nomura expects US gross domestic product (GDP) to grow by only 1.8 percent in 2022 and shrink by 1 percent in 2023. In addition, the bank finds that unemployment will rise to more than five percent by the end of 2023 and at least six percent by 2024. At present that figure is 3.6 percent

Higher interest rates hit the US economy

Last week, the US Federal Reserve raised its core interest rate to 0.75 percent. The largest increase in nearly thirty years. The Federal Reserve is trying to control inflation by making business and consumer borrowing more expensive. This should control economic demand and reduce inflation. But there is also a risk that economic growth will slow.

According to analysts Ichi Amemiya and Nomura’s Robert Dent, persistently high inflation means that the Federal Reserve will have to raise interest rates higher than previously thought.

Analysts expect the central bank to continue raising rates until the beginning of 2023. The central bank may cut interest rates again with the slowdown in economic growth.

“We expect a mild recession to begin in the fourth quarter of 2022 as growth slows and the central bank decides to stabilize prices,” Nomura analysts wrote. “The recession is coming more than ever.”

According to Nomura, the recession will be mild because the corona epidemic has saved consumers a lot of money. However, the recession will continue for a long time as governments and central banks are unlikely to intervene in financial aid packages due to inflation.

read more: Stock market nightmares are high – a 50% fall is unimaginable, says the analyst.