The Fed doesn’t think its recession forecast is forecasting recession

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Thursday, December 15, 2022

Today’s newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and more market news on the go with the Yahoo finance app.Yahoo finance app.

The Federal Reserve expects an economic downturn next year.

But just don’t call it a recession.

In its latest Summary of Economic Projections released Wednesday, Fed officials said they expect GDP growth at the end of next year to stand at just 0.5% while the unemployment rate is set to rise from its current level of 3.7% to 4.6%.

These projections were released alongside the Fed’s last monetary policy decision of 2022, which saw the central bank raise the target range for its benchmark interest rate by 0.5%, as expected.

Asked during a press conference following this announcement whether these forecasts — flat growth, rising unemployment — imply a recession hitting the economy next year, Powell demurred.

“I don’t think it would qualify as a recession…because you’ve got positive growth,” Powell said.

Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022. REUTERS/Evelyn Hockstein

Though as NBC’s Brian Cheung noted in his question to Powell, the Fed’s unemployment forecasts suggest some 1.6 million Americans are going to lose their jobs in the next year.

“There will be some softening in labor market conditions,” Powell said. “And I wish there were a completely painless way to restore price stability. There isn’t. And this is the best we can do.”

Of course, Wall Street is already a step ahead of Powell.

“The expected increase in the unemployment rate between this year and next has never happened without the economy falling into a recession,” Ryan Sweet, chief US economist at Oxford Economics, wrote in a note on Wednesday.

As we’ve seen in numerous forecasts for markets and the economy next year, consensus among most strategists has hardened around the idea of ​​a downturn hitting the economy in the second or third quarter of 2023, sending the stock market falling. And expectations that the Fed will react to a recession by easing policy have most strategists betting on stocks getting back to unchanged by the end of ’23.

But with Tuesday’s inflation data showing that the Fed’s aggressive rate hikes this year — which totaled 4.25% cumulatively — have started to have some effect in slowing prices, economists seem increasingly skeptical that the Fed hasn’t misjudged the efficacy of its own program, which is aimed at getting inflation under control and back to its 2% target.

“Despite the increasingly compelling evidence that core inflation will fall sharply next year, the Fed doubled down on its hawkishness today,” Paul Ashworth, chief North America economist at Capital Economics, wrote in a note to clients on Wednesday.

“It’s hard to know whether Fed officials really believe their own economic and rate projections, or whether they are making a point to try and reverse some of the loosening in financial conditions over the past month,” Ashworth added, referring to the sharp drop in Treasury yields and the rally in stocks since the Fed’s November policy decision.

Still, whether Fed officials want to call next year’s economic outlook recessionary or not, their own forecasts have the central bank reacting to just that scenario. Interest rates are expected to top 5% in 2023 before sliding back to 4.1% in 2024.

“The Fed remains willing to risk a recession in the labor market in order to bring inflation down and, if anything, the December projections suggest that risk has risen, not diminished,” wrote Michael Gapen and the economics team at Bank of America Global Research .

“We agree and continue to look for a recession in 1H 2023 and a sharper rise in the unemployment rate than the median FOMC member projects,” they added.

Rising unemployment, below-potential growth, and 100 basis points of interest rate cuts.

If it walks like a recession and talks like a recession, call it whatever you want.

What to watch today


  • 8:30 am ET: Empire ManufacturingDecember (-0.9 expected, 4.5 during prior month)

  • 8:30 am ET: Retail Sales Advancemonth-over-month, November (-0.2% expected, 1.3% during prior month)

  • 8:30 am ET: Retail sales excluding carsmonth-over-month, November (0.2% expected, 1.3% during prior month)

  • 8:30 am ET: Retail sales excluding cars and gasmonth-over-month, November (0.1% expected, 0.9% during prior month)

  • 8:30 am ET: Retail Sales Control Group, November (0.1% expected, 0.7% during prior month); )

  • 8:30 am ET: Initial jobless claims, week ended Dec. 10 (232,000 expected, 220,000 during prior week)

  • 8:30 am ET: Continuing claims, week ended Dec. 3 (1.668 million expected, 1.671 during prior week)

  • 8:30 am ET: Philadelphia Fed Business Outlook IndexDecember (-10.0 expected, -19.4 during prior month)

  • 9:15 am ET: industrial productionmonth-over-month, November (0.1% expected, 0.1% during prior month)

  • 9:15 am ET: Capacity UtilizationNovember (79.8% expected, 79.9% during prior month)

  • 9:15 am ET: Manufacturing (SIC) ProductionNovember (-0.1% expected, 0.1% during prior month)

  • 10:00 am ET: business inventoriesOctober (0.4% expected, 0.4% during prior month)

  • 10:00 am ET: Net Long Term TIC FlowsOctober ($118.0 billion during prior month)

  • 10:00 am ET: Total Net TIC FlowsOctober ($30.9 billion during prior month)


  • Adobe (ADBE), Jabil (JBL), Live Ventures (LIVE), Trinity Biotech (TRIB), ImmunoPrecise Antibodies (IPA)

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