There is a risk that this pivot could trigger a mild technical recession in 2023.
Simona Mocuta talks about the Fed’s hawkish policy pivot. Video(1:30)
The Fed made a dizzying policy pivot this week. It now expects three rate hikes in 2022 and three more in 2023. There is a sudden concern around inflation that was absent – in fact, conspicuously absent even a couple of months ago. And it feels as though the committee is trying to offset its prior inaction by taking a more aggressive stance going forward.
But timing matters, and it looks likely that with the current projection, the committee would be tightening and accelerating the pace of tightening just as the economy and inflation moderate substantially in the latter part of 2022.
In fact, our 2023 US growth forecast was already at the low end of the committee's own range, and that was with the milder tightening cycle. And we are concerned that given the latest projection, there is a genuine risk that the Fed would inadvertently trigger a mild technical recession in 2023.
It's possible of course that this latest hawkishness will be dialed back in coming months. And in fact, for the time being, we are comfortable retaining our call for only two rate hikes in 2022.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without State Street Global Advisors’ express written consent.
The views expressed in this material are the views of Simona Mocuta through 20 December 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
All information is from State Street Global Advisors unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Past performance is not a guarantee of future results. Investing involves risk including the risk of loss of principal.
The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.
For EMEA Distribution: The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
© 2021 State Street Corporation – All rights reserved.
Tracking Code: 4014686.1.1.GBL.RTL
Expiration Date: 12.31.2022