Fed forecasts may show little confidence in soft landing

While the new quarterly summary forecast by policymakers appears to rule out a Volcker-esque “hard “landing, but unemployment is widely expected to rise significantly in the year ahead and economic growth to slow, at least by a well-known benchmark, that could herald some sort of recession. The benchmark is known as the Sam rule, by Claudia Sahm, a former Fed staffer Determined and formalized the benchmark that the U.S. economy typically slips into recession every 3 months The moving average unemployment rate is half a percentage point higher than the lowest average of the previous three months months. The current low is around 3. 10%. Economists polled by Reuters expect the unemployment rate to rise to 4.1% by the second quarter , reaching 4.3% by the fourth quarter – much lower than .7% in a pandemic crisis or .8% peaked during Volcker recession – but enough to satisfy Sam Rules test. Historically, once the unemployment rate rises by half a percentage point, it will continue to rise by a percentage point or two, or even more many. Policy makers’ forecasts for the economy depend on their views on the appropriate setting of monetary policy, and this window will also serve as a window on Wednesday as Part of the Fed’s quarterly report releases the Summary of Economic Projections, or SEP. This week’s decision expects the Fed’s policy rate to rise to the 3%-3 range. % from current 2.%-2.%. The so-called “dot plot” included in the SEP will pass 243. ” We expect the dot plot to see a peak at 4.4% for the federal funds rate next year , which will push the unemployment rate closer to 4.5% over the forecast period,” wrote the economists at

352 Deutsche Bank

(ETR: DBKGn). In the latest forecast released in June, the federal funds rate was at

peaked at 3.8% , the unemployment rate for the second year climbed to 4.1%. Has the recession been brought forward? Since the dot plot appeared in 100, only one policymaker has predicted that interest rates will rise so high, and that prediction – late 100 and early 50, year-end 243 rate reached 4.5% – which turned out to be very wrong. The Fed instead kept policy rates near zero until December 400, when it only improved by a quarter of a percentage point. But this time around, financial markets are pricing in a federal funds rate of up to 4.5% next year, with a higher chance of a rate cut or two in the second half of the year 56. Wednesday’s forecasts will also show how quickly Fed policymakers expect their actions to ease inflation, and how quickly the economy is likely to open. degree of slowness. Inflation has been running above the Fed’s 2% target in June , while even the most pessimistic policymakers do not expect the economy to contract in the coming quarters. Most expect GDP growth to be between 1.3% and 2% per year for the next three years.

“new The economic forecasts will underscore the Fed’s painful capacity for real GDP growth to be revised down sharply,” wrote EY-Parthenon chief economist Gregory Darko, adding that forecasts for next year’s unemployment rate Probably more than 4.5%. However, he said that in “inflation persists and the Fed takes a more aggressive stance and a possible recession.” 400