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BofA Reviews Chairman Powell JH Policy Remarks, Forward Guidance

FED
BofA economists largely anticipated hawkish messaging from the Fed Friday: The Fed "wants to reduce inflation and will risk a recession to restore price stability."
"Higher for longer" replacing "lower for longer" mantra:
  • "In our view, the Fed is not pushing back against the potential for cuts in 2023 so much as it is signaling its commitment to do what it takes to restore price stability. The Fed's baseline outlook calls for a soft landing (positive growth, but below potential) and only a modest rise in the unemployment rate. Disinflationary pressures under a soft landing are likely to be more moderate than under a recession that coincides with a larger increase in unemployment. As a result, the holding period for restrictive policy under a soft landing scenario is likely longer than it would be under a deeper contraction."
  • BofA maintains "our view that a hard landing is more likely than a soft landing and, in turn, a larger rise in the unemployment rate is likely forthcoming (see 2022-23 US outlook: Mild recession supports a return to price stability, 13 July 2022). Fed tightening cycles end in recessions more often than not, though the recession need not be deep by historical standards."
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