The next recession is coming in December 2014, if the Fed tightens policy in November 2011 as Deutsche Bank expect, according to bank analyst Michael Lewis.
Lewis, citing in house research, suggests that it is Fed tightening policy, specifically how long it waits to hike rates from the start of an expansion, that determines when the next recession will be.
So if the Fed hikes rate today, a recession should start at a certain date in the future, based upon the established ratio of months into an expansion and the future recession start date.
From Deutsche Bank:
Not surprisingly the longer the Fed waits to raise interest rates, typically the longer the expansion will be. According to our US Economics team the Fed is expected to tighten monetary policy in November this year or 29 months after leaving recession in June 2009.
Using the regression outlined in Figure 1 this would imply an expansion of 66 months. Put another way, the next US recession will begin in December 2014.
Obviously, this projection could change if the Fed chooses to tighten sooner, or later, than Deutsche Bank currently project. But it’s important to note this recession start data because the S&P 500 and commodities prices should start to slide 8 months ahead of it, according to Lewis.
Lewis does note that a continued rise in oil prices may impact the success of this projection.
Photo: Deutsche Bank