BMO Fixed Income Head Sees ‘99.9%’ Odds of Fed-Induced Recession

Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia’s war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks. The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 3 to 3-1/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective. In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor ma tweet at 2:00pm: FED HIKES INTEREST RATE BY 75BPS TO 3.25% VS 2.50% PREVIOUS; EST 3.25% tweet at 2:01pm: FED SAYS RECENT INDICATORS POINT TO MODEST GROWTH IN SPENDING AND PRODUCTION FED SAYS PREPARED TO ADJUST POLICY AS APPROPRIATE FED SAYS VOTE IN FAVOR OF POLICY WAS UNANIMOUS tweet at 2:00pm: FED SAYS INFLATION REMAINS ELEVATED, REFLECTING PANDEMIC-RELATED IMBALANCES, HIGHER FOOD AND ENERGY PRICES, BROADER PRICE PRESSURES FED SAYS WAR IN UKRAINE CREATING ADDITIONAL UPWARD PRESSURE ON INFLATION, WEIGHING ON GLOBAL ECONOMIC ACTIVITY tweet at 2:01pm: FOMC STATEMENT COMPARISON https://t.co/1MYTholM3a

In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 20–21, 2022, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2022 to 2025 and over the longer run. Each participant’s projections were based on information available at the time of the meeting, together with her or his assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run value—and assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant’s assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. “Appropriate monetary policy” is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability. tweet at 2:00pm: Fed Officials See Fed Funds Rate at a Median of 4.4% at End of 2022 tweet at 2:00pm: [DB] FED MEDIAN FORECAST SHOWS RATES AT 4.6% IN 2023, 3.9% IN 2024 tweet at 2:00pm: *#FED RAISES BENCHMARK RATE BY 75 BPS TO 3%-3.25% RANGE - BBG *FED MEDIAN FORECAST SHOWS 2.9% RATES AT END '25, LONG RUN 2.5% *FED DOT PLOT SHOWS SPLIT OVER AMOUNT OF TIGHTENING IN '22, '23 tweet at 2:01pm: ONE FED OFFICIAL SEES U.S. GDP CONTRACTING IN 2023 SUMMARY OF ECONOMIC PROJECTIONS IMPLIES AT LEAST ONE MORE 75-BASIS-POINT RATE HIKE IN 2022, NO RATE CUTS UNTIL 2024 FED SAYS IT IS HIGHLY ATTENTIVE TO INFLATION RISKS, STRONGLY COMMITTED TO RETURNING INFLATION TO 2%