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Deutsche Bank predicts major U.S. recession - YouTube
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[Applause]
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and there it is the closing bell at the
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new york stock exchange u.s stocks
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shook up the gdp report and rose today
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as markets rallied from sharp losses
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earlier this week the dow jones ended
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the day in the green jumping about 34
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000 points
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the nasdaq and s p also had a good day
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the nasdaq climbed around three percent
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and the s p is up more than two percent
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joining us now is matthew luzetti he is
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a chief u.s economist for deutsche bank
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matthew thanks so much for joining us
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earlier this month deutsche bank became
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the first major bank to forecast a u.s
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recession then earlier this week that
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prediction was updated to a massive
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recession then today the u.s commerce
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department reported that gdp declined
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for the first time since 2020. do you
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think this is further evidence that a
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recession is imminent
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sure first thanks so much for having me
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i think it was important here uh this
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morning's print is yes it was negative
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we were down
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minus 1.4 percentage points
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uh but the composition of that was
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really driven by a few items it was
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driven by net exports and trade data
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which has been quite volatile it was
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also driven by inventories where we saw
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a bit of a de-stocking and actually
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government spending
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we tend to like to focus on uh those
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measures of private domestic demand
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consumer spending housing business
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investment and when you do that those
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numbers are actually quite strong
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growing uh 3.7 annualized when you look
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at those three items together
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net exports alone subtracted more than
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three percentage points so
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no you know we do expect we're going to
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see a a recession by uh the end of next
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year but this was not the start of it we
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do expect that you're going to continue
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to see relatively solid growth
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throughout the course of this year
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around two percent on average over the
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course of this year and that the economy
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should bounce back in the second quarter
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and so what are some of the factors that
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your bank is watching uh that has
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led the bank to believe that this
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massive recession is is imminent
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sure so for us uh really it is all about
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the inflationary pressures that we are
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seeing in the economy and the likely
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necessary response that we have to have
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from a monetary policy perspective and
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so it is actually the strength in the
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economy the strength in the labor market
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which we saw again today with jobless
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claims remaining near record lows the
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strength that we've seen in the labor
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market with the unemployment rate at 3.6
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measures of labor market slack uh
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basically at historically tight levels
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and the fact that that is feeding into
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broadening wage and price pressures uh
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which suggests that the fed has to get
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more aggressive we expect they're going
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to be more aggressive next week raising
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rates by 50 basis points we expect
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they're going to follow that up with two
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more 50 basis point rate increases in
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june and july
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and that they'll have to bring monetary
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policy to a restrictive stance by the
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middle of next year our baseline
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estimate is a 3.6 uh fed funds rate and
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that that is kind of a necessary
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monetary policy response really to get
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inflation pressures back down the
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byproduct of that i think will be our
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baseline is a mild recession towards the
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end of 20 uh
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2023
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with risk that it is more severe if
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inflation pressures really do not
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subside at all
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matthew is there anything u.s officials
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can do at this point to prevent a major
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economic downturn and if so what
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it's a very difficult one and it's a
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very difficult one because the typical
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things that you would anticipate to
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prevent the downturn would be providing
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support for demand
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and really it is demand and overheating
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economy it is too much demand relative
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to supply
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that is creating the issues that central
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bankers are dealing with today and that
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policymakers are dealing with today and
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it's creating the the price pressures
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that we're seeing you know several
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decade highs for inflation very rapid
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wage gains
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and so the typical policy response which
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would be easing policy or providing some
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income support uh is not what is needed
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right now uh on the other hand things
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that can help to alleviate supply chains
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would be helpful uh things that would
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help to bring people back into the
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workforce would also be helpful but i
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think ultimately we don't think that
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price pressures are simply going to
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subside due to what's happening on the
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supply side of the economy really what
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will ultimately be needed will be
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tighter monetary policy fiscal policy
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will tighten this year relative to last
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year and that that will be the ultimate
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source of the downturn that we
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anticipate next year all right and again
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ending the day in the green today dow
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sitting up about 600 points matthew
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lizetti thank you
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thank you
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