NEW YORK (Reuters) – BNP Paribas expects the Federal Reserve to push the fed funds rate to a peak of 5.25% in the first quarter next year, higher than market expectations and a level that could tip the world’s largest economy into recession, the bank said in a research note on Wednesday.

The French bank is forecasting the U.S. economy to go into recession in the second quarter of 2023.

“We expect a more aggressive Fed response to stickier, more pervasive inflation to push the economy into recession,” BNP said.

“And in our view, the same inflationary dynamics which now make a non-recessionary outcome unlikely will similarly constrain the Fed from rapidly reversing course in the early stages of the downturn,” it added.

Fed funds futures have priced in a peak fed funds rate of 4.97% hitting in May 2023. The futures market has also priced in a 91% chance of a 75 bps rate rise in November, and a roughly 75% probability of another 75 bps increase in December.

Minneapolis Fed President Neel Kashkari, a voter in the Federal Open Market Committee in 2023, said late on Tuesday that the Fed may need to push its key rate above 4.75% if underlying inflation does not stop rising.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Sandra Maler)