📝 See U.S. Falling Into Recession In Second Half Of 2023: Rabobank

The exogenous threats to the US economy are the negative supply shocks related to Covid‐19, including the most recent lockdowns in China, the Russian invasion of Ukraine, and subsequent sanctions. Our European macro strategists expect that the oil boycott announced by the EU last week is likely to push the European economy into recession by the end of 2022/early 2023. These exogenous threats could drag the US economy into recession even before the Fed is done hiking.

The economy is already being hammered by a series of negative supply shocks that could drag down the economy even without the Fed hiking policy rates into restrictive territory. In fact, the US could already be in a recession. After all, GDP growth in Q1 was ‐1.5%. So if Q2 GDP growth turns out negative as well, we are already in a recession according to macroeconomics textbooks. However, this does not seem very likely given robust consumption and investment. What’s more, in the US recessions are determined by the NBER which tends to focus more on employment growth than GDP. Employment growth has remained strong this year. Meanwhile, the Russian invasion of Ukraine and subsequent sanctions are likely to push the European economy into recession by the end of 2022/early 2023. The Fed has no choice but to engineer a recession if inflation remains persistent. So assuming that the US manages to avoid a recession this year, we expect the Fed to push the economy over the cliff next year. The Fed is expected to reach the neutral rate in the final months of this year and to raise the target range above it early next year. With the usual lags of monetary policy this would likely get the US into recession in the second half of next year.

- Rabobank