In April of last year, just a month after Russia’s invasion of Ukraine, Deutsche Bank became the first major investment bank to predict a U.S. recession. Less than a month later, its economists upped the ante on their forecast, arguing that a “major recession” would hit by the end of 2023 or the first quarter of 2024 due to rising interest rates and stubborn inflation.

But since then, the economy has remained surprisingly resilient even amid consistent headwinds. The unemployment rate stuck near pre-pandemic lows at 3.7% in May and GDP jumped 1.1% in the first quarter. The stock market is also on fire after a dismal 2022, with the S&P 500 rising more than 12% year to date as investors flock to A.I. plays.

Still, despite the recent positive news, Deutsche Bank’s top minds continue to believe a recession is inevitable after the Federal Reserve’s historic policy shift.

“The U.S. is on track for its first genuine policy-led boom-bust cycle in four decades, induced by a significant increase in the money supply over 2020–21, unleashing high inflation and an aggressive policy response,” Deutsche Bank’s head of global economics and thematic research, Jim Reid, and chief economist, David Folkerts-Landau, wrote in a Monday research note. “The next stage is the U.S. recession that we were the first to forecast early last year.”

For more than a decade after the Global Financial Crisis, Fed officials sought to boost economic growth by holding interest rates near zero and instituting a policy called quantitative easing (QE)—where they would buy government bonds and mortgage-backed securities in order to increase the money supply and spur lending and investment in the economy. When the pandemic hit, they doubled down on these so-called “easy money” policies to help prevent an economic disaster. But Reid and Folkerts-Landau argue that this move set the U.S. up for a disastrous spell of inflation and a boom-bust cycle.

The easy money policies of the Fed, along with broken supply chains and stimulus programs, helped exacerbate the rise of inflation in 2021, according to Deutsche Bank, and forced Fed officials to raise interest rates from near zero to a range between 5% and 5.25% over the past 15 months. Reid and Folkerts-Landau argue that consumers and businesses are struggling to cope with the rising borrowing costs that have come with these aggressive rate hikes.

“After 10–15 years of zero/negative rates and near continuous QE, businesses, consumers and investors are a long way from fully adjusting to the recent rate shock,” they wrote, arguing more financial “accidents” like what happened with U.S. regional banks in March, when Silicon Valley Bank and several others collapsed, “remain a big risk” as interest rates rise.

The pair explained that another financial accident would lead to a further reduction in lending and crush the “animal spirits” of investors that have been lifted by A.I. of late, thereby accelerating a recession and market downturn. The renowned British economist John Maynard Keynes coined the term “animal spirits” in 1936 to describe how investors and consumers are often driven by emotion rather than logic, particularly in the near term, which can lead them to be spooked by bad economic data.

Reid and Folkerts-Landau also believe the Fed could be forced to raise interest rates up to three more times in order to fight core inflation, which excludes volatile food and energy prices. The Fed’s favorite gauge of core inflation, the personal consumption expenditures (PCE) index, rose 0.4% from March to April, much higher than its 0.1% rise the previous month. And year over year, prices were up 4.4% in April, compared to 4.2% in March.

“Core inflation is proving too high for comfort and recessionary conditions may be the only way of returning it to target,” they wrote.

While some investment banks now argue that the strong labor market will prevent a major recession from hitting the U.S. economy, Folkerts-Landau and Reid pointed out that the financial models many banks use to predict recessions aren’t always reliable—which means consumers and investors should be on guard.

“The problem with predicting recessions is that model-based forecasts rarely predict them in advance,” they wrote. “On the rare occasions where recessions are predicted, mild downturns tend to be the worst that models can generate. So if we do get a hard landing, don’t expect models to predict it in advance.”