What 70 years of data reveals about the Federal Reserve causing recessions
For those concerned the Federal Reserve hiking interest rates will tip the economy into a recession sooner rather than later, try this data set on for size.
It takes around three years from the first Fed hike to enter a recession, according to 70 years of data on rate increasing cycles crunched by Deutsche Bank.
The quickest recession could be traced back to July 1981.
Under then chairman Paul Volcker, the Fed began increasing rates in August 1980 to cool double-digit percentage consumer price inflation (sound familiar?). About 11 months later, the economy was in a recession, according to Deutsche Bank's analysis.
The longest it took to enter recession after the first rate hike was 84 months.
Deutsche Bank notes interest rates were first increased in May 1983, continuing to August 1984. By July 1990, the U.S. was in a recession.
"Not every Fed hiking cycle leads to a recession, but all hiking cycles that invert the curve have led to recessions within 1 to 3 years," said Deutsche Bank strategist Jim Reid.
The Fed is likely to begin its rate hiking cycle on Wednesday as it seeks to stomp out nearly double-digit price inflation brought on by the recent energy price shock and ongoing supply chain chaos.
In turn, that has some on Wall Street growing worried about a recession happening in the not-too distance future.
Goldman Sachs Chief Economist Jan Hatzius recently cut his 2022 U.S. GDP forecast to a growth of 1.75% from 2% previously.
"We now see the risk that the U.S. enters a recession during the next year as broadly in line with the 20[%]-35% odds currently implied by models based on the slope of the yield curve," Hatzius said.
RSM Chief Economist Joe Brusuelas puts the odds of a recession at roughly 33%.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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