Fidelity: Risk of balance sheet recession increases

Fidelity: Risk of balance sheet recession increases

15 december 2022

Fed
Algemeen aandacht omhoog alert

Salman Ahmed, Global Head of Macro and Strategic Asset Allocation, Fidelity International, comments on yesterday’s FOMC meeting:

'As expected, the Fed downshifted the pace of hikes to 50 basis points, but that was the only relief offered. The terminal rate was raised to 5.1 per cent and the 2024 rate was increased to 4.1 per cent, well above neutral. Dot plots showed increasing projection of a possible recession highlighting the damage to growth the ongoing tightening would inflict.

In his press conference, Chair Powell reiterated that the Fed needs a meaningful and sustained reduction in inflation and shared his concern that non-housing core inflation may prove sticky (despite the softer than expected CPI print this week), hence the need to keep rates higher for longer. Chair Powell also commented on structural labour shortages which may keep inflation elevated, meaning restrictive policy for a prolonged period may be needed.

We remain of the view that US economy is heading towards a recession. The risk of a balance sheet recession will rise if Fed policy remains above neutral for an extended period with corporate and consumer balance sheets rolling into much higher rates from 2024 onwards.'

 

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