© 1982-2022 MNI. All rights reserved.
Terms | Privacy
Log Out
Free Trial
US

Corporate Credit Update: Steady

GBPUSD TECHS

Corrective Cycle Still In Play

US TSY FUTURES

BLOCK, 2Y Sale

US

Biden Disapproval Reaches New High

US STOCKS

Equity Roundup: Resilient Despite Weak Data

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
Trending Top 5
Topics

Guggenheim: Fed Badly Behind Curve, Tightening Into Downturn

US OUTLOOK/OPINION
BulletMarketsFixed IncomeForeign Exchange

Guggenheim Investments says the US could enter recession as early as 2H 2023, amid a "collision" between Fed tightening and a strong but cooling US economy.

  • They note a significant divergence in the past year between Fed policy and dual mandate variables: "Historically, the Fed would change the fed funds rate in response to changes in the unemployment rate and changes in inflation ... Simply adding up these changes has tracked well with changes in Fed policy." [See chart.]
  • The divergence is largely due to the pandemic shock, but also the Fed's updated policy strategy and a "misreading of the inflation surge as transitory". Whatever the reason, Guggenheim sees the Fed as "badly behind the curve".
  • If the usual historical relationships had held, the Fed funds rate would already be around 2.5% and set to come down with inflation decelerating and the pace of the unemployment rate declining.
  • But now, the Fed is set to hike to 3.5% into 2023, and "well before it reaches this terminal rate the Fed will increase the risk of overshooting ... and starting a recession" as early as 2H 2023.

Source: Guggenheim

197 words

To read the full story

Why Subscribe to

MarketNews.com

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.

Guggenheim Investments says the US could enter recession as early as 2H 2023, amid a "collision" between Fed tightening and a strong but cooling US economy.

  • They note a significant divergence in the past year between Fed policy and dual mandate variables: "Historically, the Fed would change the fed funds rate in response to changes in the unemployment rate and changes in inflation ... Simply adding up these changes has tracked well with changes in Fed policy." [See chart.]
  • The divergence is largely due to the pandemic shock, but also the Fed's updated policy strategy and a "misreading of the inflation surge as transitory". Whatever the reason, Guggenheim sees the Fed as "badly behind the curve".
  • If the usual historical relationships had held, the Fed funds rate would already be around 2.5% and set to come down with inflation decelerating and the pace of the unemployment rate declining.
  • But now, the Fed is set to hike to 3.5% into 2023, and "well before it reaches this terminal rate the Fed will increase the risk of overshooting ... and starting a recession" as early as 2H 2023.

Source: Guggenheim