South Forest Hill Residences.A year without an accident is an accident! It is believed that if the Federal Reserve accepts inflation above 2%, the ECB will start to cut interest rates in the second half of next year, the Bank of Japan will remain indifferent, and a series of “surprises” such as another sell-off in gilts will take place in 2023 or make waves in the global market.Please Visit: South Forest Hill Residences to Get Your VVIP Registration Today!
There have been too many black swan events in 2022. High inflation has led to radical tightening by central banks around the world, energy crises triggered by geo-conflicts, a recession in real estate in Europe and the United States, and a sharp rise in gilt yields, almost triggering a bond market crash.
Morgan Stanley strategist Matthew Hornbach and his team speculated on Dec. 16 that the eight “Black Swan events” might come as a surprise to investors if they were to take place in 2023.
Among them, the Fed postponed the rate cut until 2024, the Fed accepted inflation of more than 2 per cent, liquidity challenges facing US Treasuries forced the Fed to suspend QT, the ECB will start to cut interest rates in the second half of next year, another sell-off in gilts, a bull market in sterling, rescued Canadian real estate and an indifferent Bank of Japan.
Morgan Stanley said in the report that the US economy began to decline in 2023, and many investors believe that the Fed will stop raising interest rates in 2023, but the Fed may postpone the rate cut until 2024. The Fed, which gives priority to concerns about the stickiness of inflation, has no time to take into account slowing economic growth and weak labour markets, and wants to wait for evidence of falling inflation, the report said.
Inflation, as a lagging indicator, cools later than the labor market, and the Fed is likely to cut interest rates again a few quarters after the recession begins.
The market expects inflation to cool next year, and the Fed will start cutting interest rates in the second half of 2023, with about seven cuts in 2024. The Fed’s latest forecasts for the economy at its December FOMC meeting have hinted at this possibility. The Fed is expected to maintain a terminal interest rate of 5.125 per cent by the end of 2023, in its forecast, and core PCE inflation is expected to be 3.5 per cent by the end of 2023.
We believe that the yield on 10-year Treasuries has not fallen much in the recession of 2023, and the yield on 10-year Treasury bonds will continue to be inverted from that of 2-year Treasuries.
Looking back from the end of 1981 to mid-1982, the Fed under Paul Walker did not cut interest rates in the face of negative GDP growth and a marked decline in wage income. Wages began to fall sharply in September 1981, but the Fed did not begin to cut interest rates in a real sense until July 1982.
Walker decided to maintain a restrictive position until the core CPI itself began to cool. Powell also mentioned this point many times: history warned us not to relax policy prematurely.
