Joe Biden will be battling a US recession in the run-up to the next presidential election and a possible rematch against Donald Trump, a major bank has predicted for the first time.

The Federal Reserve is set to aggressively lift interest rates in an attempt to curb the strongest inflation in 40 years, but in doing so will trigger a recession, according to economists at Deutsche Bank.

It is believed to be the first large bank to call a recession in the world’s leading economy as the war in Ukraine worsens inflationary pressures.

A recession would be a major blow to Mr Biden’s re-election hopes with his presidency already on the rocks following an approval ratings slump. 

The next presidential election is in 2024 but Mr Biden’s party is facing defeat in the midterms later this year.

Matthew Luzzetti, US economist at Deutsche, said an aggressive tightening of the Fed’s policy “will likely tip the economy into a recession towards late 2023, helping to drag inflation back towards target by end 2024”.

He said: “Inflation in the US is currently running at four-decade highs, and there are a number of reasons to believe it will remain well above the Fed’s target unless demand is meaningfully dented.”

Meanwhile the eurozone is set to stagnate, narrowly dodging an outright recession but joining the US in a painful slowdown.

Higher interest rates combined with the knock-on impact of the US slump will force the eurozone “to the point of stagnation in early 2024”.

The warning comes after one of the market’s most trusted recession signals flashed red last week.

The yield on two-year Treasuries – US government debt – rose above those on 10-year bonds, a so-called “inversion” that has preceded every recession in the US for the past 50 years. 

It signals investors expect the central bank will need to cut rates in response to a recession.