Strategist Expects US Recession by Year-End, Fed Tightening to Drag Down Economy

Investment bank MPS Capital Services has warned that the U.S. economy will be in a recession by year-end. The firm’s strategist predicts that the Federal Reserve will raise interest rates by an additional 25 basis points, warning that the central bank’s monetary tightening “will drag down on the economy.”

Luca Mannucci, head of Market Strategy at MPS Capital Services, has warned that the U.S. will be dragged into a recession by year-end and the U.S. dollar will plunge as much as 5% against other currencies in the second half of this year, Bloomberg reported Thursday.

MPS Capital Services is an Italian corporate and investment bank, part of the banking group that includes Banca Monte dei Paschi di Siena SpA. The strategist was quoted as saying:

We expect the recession in the U.S. by year-end … The tightening of the monetary policy will drag down on the economy.

Mannucci predicts that the Federal Reserve will raise interest rates by an additional 25 basis points, while the European Central Bank (ECB) is expected to increase rates by at least two quarter-points.

He expects the U.S. dollar to depreciate by about 3% against the euro in the coming months due to the Federal Reserve’s interest rate hikes, the news outlet conveyed, noting that the Bloomberg Dollar Spot Index has already dropped 1.6% this year, and it has fallen approximately 10% from September’s record high.

The MPS strategist further warned that the failure of several regional U.S. banks, along with the issues faced by Credit Suisse, could result in tighter credit conditions and hurt the economy.

Many people have predicted a recession in the U.S. The president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, says the current banking crisis has pushed the U.S. economy closer to a recession. Economist David Rosenberg has warned of a “crash landing” and an impending recession for the U.S. economy. Gold bug Peter Schiff cautioned that the U.S. will face a financial crisis and a “much more severe recession” than the Fed recognizes. Meanwhile, billionaire “bond king” Jeffrey Gundlach foresees “painful outcomes” in the next recession.

What do you think about the predictions by the MPS strategist? Let us know in the comments section below.