Federal Reserve sparks recession fears with “hope” strategy

Federal Reserve sparks recession fears with “hope” strategy

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Douglas Cote

Douglas Coté, CFA

Head of Global Perspectives Strategies

Hope is not a strategy for avoiding a recession. Fed Chair Jerome Powell sparked recession fears on Wednesday during a panel discussion at the European Central Bank’s annual policy forum in Sintra, Portugal. In his comments, Powell repeated his hope that the Fed can achieve a soft landing, but said “the pathways have gotten narrower”[1] and acknowledged there is no guarantee the Fed can achieve its aim without hurting the job market. Powell’s comments unsettled the markets a little, and no wonder. His resolve to quell inflation is evident; the consensus is that the Fed funds rate will increase another 75 basis points (bp) at the July FOMC meeting, totaling a 150-bp increase in a little over a month. What’s more, beneath the radar for now, quantitative tightening of $47 billion per month — which increases to $94 billion in September — is pulling money out of the system. Despite the prospect of higher rates, yields are dropping and bonds are once again looking like a “safe-haven” asset, perhaps taking the place of commodities, where prices are declining.

 

[1] Source: https://www.wcax.com/2022/06/29/powell-no-guarantee-fed-can-tame-inflation-spare-jobs/

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