Since the August Jackson Hole Symposium, the Fed has cautioned that the tightening cycle was far from over and that “some pain” would be ahead for the economy. If that message hadn’t been fully received, Wednesday’s Fed proceedings made it crystal clear. Even though the narrative of the FOMC (Federal Open Market Committee) statement shifted only slightly, it was the increase in the terminal rate (e.g., potential peak) forecasts for 2022 and 2023 from 3.4% and 3.8% to 4.4% and 4.6% respectively that got the markets’ attention. These adjusted projections not only signaled that rates will move well into restrictive territory, but that the rate hike story will extend into 2023. As we stated last week, taking rates to 4.5% or higher would increase the probability of a mild recession next year. Here are our areas of concern:
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