I interest rate hikes scheduled and announced by Fed, however aggressive, they might not enough to bring US inflation under controli.e. towards the target level of 2%. This is what the Intesa Sanpaolo Studies and Research Department writes in a report published on Thursday.
According to the analysts of the Italian Bank, the USA risk that an excessive restriction on the monetary side will lead to the slowdown in economic activity, which could turn into recession in 2023.
The FOMC, the executive arm of the Federal Reserve, plans others for the time being seven interest rate hikes in 2022 plus four in 2023. Intesa Sanpaolo economists forecast fed funds at 2,25-2,5% at the end of 2022 and at 3-3,25% in 2023, with upside risks especially for 2022, and state that the March to confirm a 50 basis point hike at the May meeting and the June or July meeting.
Public spending
With regard to the fiscal policy, the Italian Bank points out that the US public spending it is down from 2020-21 levels. This too risks contributing to an excessive slowdown in growth in 2023, already weighed down by the difficult global situation as well as by core inflation, which is set to remain at high levels.
consumption
On the domestic demand side, Intesa Sanpaolo observes that i consumption – supported first by fiscal policy and then by the labor market – are the locomotive of the US recovery. Precisely the excess demand for goods, services and work has pushed inflation to a 40-year high.
investments
As far as the investments, these too are growing, but risk being held back by the increase in interest rates.
GDP and employment
In general, the GDP of the US is back to pre-Covid growth levels, though employment it has not yet recovered to the particularly high levels reached before the pandemic.
The effects of the war in Ukraine
On this scenario are then grafted the consequences of the war in Ukraine: “The conflict has modest effects on US growth, thanks to the net neutral position in the energy sector and largely positive in the agricultural sector – reads the report – The United States' exposure to trade and financial exchanges with Russia and Ukraine is limited. The balance of net oil exports is nil, gas and oil imports from Russia are around 3% of the total”.
However, the war has increased the risk that inflation will continue to rise.
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