The US will tip into a long recession this year as the Fed hikes interest rates hard, investment bank Nomura says

The US will be in a mild but lengthy recession this year as a result of the Fed's interest rate hikes, according to an investment bank.

In the fourth quarter of this year, the US gross domestic product will contract, followed by six more quarters of negative growth, according to a report.

The US GDP would shrink by 1% in 2023, according to the report. The unemployment rate is currently 3.6%, but the bank expects it to jump to 4.6% by the end of next year.

The Fed raised interest rates last week for the first time in two decades. Inflation came in at 8.6% in May, the highest reading in 41 years.

The persistence of inflation meant that the Fed would have to raise interest rates harder than before, spelling trouble for growth.

According to the analysts at the bank, the Fed will raise rates to 3.4% by the end of the year and then cut them as growth slows. The Fed has a target range of 1.5% to 1.75%

"With rapidly slowing growth momentum and a Fed committed to restoring price stability, we believe a mild recession is now more likely than not."

The recession would be mild because consumers built up a lot of savings during the coronaviruses epidemic, which should give them a cushion.

The bank's analysts think the downturn will last longer than previous episodes because of high inflation.

Retail sales fell in May according to Amemiya and Dent. They said searches for "recession" have gone up a lot.

The economists said that the Fed's interest rate hikes have already hit the housing market.

The National Bureau of Economic Research adjudicates recessions in the United States. They are periods when activity in the economy goes down significantly and last for a long time.