The 2024 Recession: 100% Likelihood of USA Recession
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In today's video, we're diving deep into a recent Deutsche Bank study that says a recession is coming to the USA 100%, based on four recession indicators.
Predicting a recession is no walk in the park, given the many variables at play—think geopolitics, like the Ukraine conflict or global pandemics.
But according to Deutsche Bank, they're sounding the alarm bells, claiming the likelihood of a U.S. recession is at a whopping 100%.
They're warning of an imminent boom-and-bust cycle that we can't avoid.
To back up their claims, Deutsche Bank's Jim Reed, the head of global economics and thematic research, analyzed 34 recessions dating back to 1854.
They've pinpointed four key macroeconomic triggers that have historically caused recessions.
Now, let's dig into these triggers, and you'll see the hit ratios as we go.
First up, we have rapidly rising interest rates. Over the past 18 months, we've witnessed a significant hike in interest rates, going from near-zero levels in March 2022 to a staggering 5.5% by September 2023. Historically, when short-term interest rates have risen by 2.5% over 24 months, there's been a recession within three years—about 69% of the time. The chart resembles an elevator ride, and this steep climb is concerning.
Next on the list is rising inflation, which currently stands at 3.7% year-over-year as of August 2023, up from 3.2% the previous month. Deutsche Bank finds that a 3% inflation rise over two years triggers a recession in roughly 77% of cases.
The third indicator is the infamous inverted yield curve. It's when short-term interest rates exceed long-term rates for loans of the same risk profile. This anomaly has a strong correlation with recessions, with 74% of cases signaling a downturn. We've been in an inverted yield curve since mid-2022, as seen in the Fred chart, and it's something to keep a close eye on.
Last but not least, soaring oil prices have jumped around 30% since June, reaching over $94 a barrel. However, this indicator is less likely to predict a recession in the U.S., with a 45.9% correlation when oil prices spike 25% over a year.
Now, let's not forget the geopolitical factors at play, such as the Israel-Hamas situation and tensions between Russia and Ukraine, which can add unpredictability to the mix.
In conclusion, while these recession indicators are flashing red, it's essential to approach this information with a level head.
Low unemployment is currently propping things up, but any changes there could trigger a recession. We're in uncertain territory, and it's crucial to stay informed and make well-informed decisions tailored to your unique circumstances.
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