Dr. Sami Shaar, chief economist of the Swiss bank Lombard Odier, refers to the Fed and ECB statements and estimates that a slight recession is on the way. The markets expected a ‘soft landing’, with a record interest rate of 3%, but the interest rate will be higher – about 3.75%.
“A recession could be caused starting at an interest rate of over 4%. Now, we expect a slight recession. We expect another interest rate hike of 0.75 basis points in July, 0.50 in September, and 0.25 in November and December. With interest rates reaching 3.75% and real rates below -1%, the US economy will undergo the sharpest monetary tightening without significant damage: we expect a moderate recession in 2023, with unemployment rising to around 4.5-5% and no significant rise in interest rates.
“We estimate that supply-side improvements following China’s reopening helping the supply chain and easing problems arising from the corona outbreak, and softening demand due to tighter financial conditions should lead to inflation falling below 4% by the end of 2023 – with the decline expected in the last quarter of 2022. However, there is a possibility that the Fed will adopt a policy that is too strict in dealing with and focusing on inflation, and then there is a risk that there will be a significant contraction in the economy. ”
So on and on, should we be afraid of a recession? Not so sure, here’s an explanation of what a recession is, a bit about the recessions in history and the recent recessions.
In parallel with the events in the US, the ECB also presented its action plan for dealing with the state of the markets – “The ECB recognizes developments in the bond markets in the peripheral countries of the Eurozone and the need for stronger commitments than those announced at its interest rate meeting last week. These measures may be seen as insufficient, which renews the pressure on credit spreads among eurozone companies.The new policy, which is due to be announced at the monetary policy meeting in July, may include a new emergency purchase plan for markets where pressure has arisen (e.g. Italian bonds).
“The ECB will aim to achieve the charm achieved by former ECB President Margie Draghi’s commitment in 2012 to do ‘everything necessary’ to maintain the unity of the eurozone. But the fact that the ECB is announcing this step only now, And did not disclose details, indicating that the moves and the program will go into effect during a period of high inflation that will challenge the move.We expect an increase of 25 basis points by the ECB in July, then increases of 50 basis points in September and October, then a decrease of 25 points in December Market expectations now predict a record interest rate of 2.5%, but we believe that the eurozone will not be able to hold such a wide monetary tightening, and believe that the final interest rate will stand at 1%. The interest rate is even higher ”
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