Lacey Hunt and Danielle DiMartino Booth on Liquidity and the Problems the Fed Faces – Mesh Talk
Daniel DiMartino Booth 1 on 1 with Lacey Hunt
Please consider Danielle DiMartino Booth 1-on-1 with Lacy Hunt
The pair discusses liquidity, velocity, PUT and QT by the Fed, who is hardest hit by inflation, which sectors of the stock market are hardest hit, who is inflation hardest hit and when a recession hits.
Booth noted that home prices are just starting to fall, so the headline CPI could rise until 2023.
“This is a problem that the Fed created for itself,” Lacey replied. And because of the delay in rent adjustments, “the Fed is trailing its tail.”
But Lacey continued, “It is clear that the rate of inflation has peaked and is heading downward.” Many will disagree with that but I think it exists.
Danielle commented: “It was interesting to me that the assumption was that GDP would be 0.2 per cent for the whole of 2022. Do you think they were sending a message by lowering GDP so far that it is almost a bug and yet they remain firm? As it is.Have you read a lot about this?
Lacy replied, “No, I don’t think you are. They did it for a purpose. They had a bad experience in June.”
Lost in this discussion is the fact that after two quarters of negative GDP, the Fed’s point chart consensus of 0.2 percent of GDP for this year is a big boost from here.
My opinion was that the consensus forecast was too optimistic. The Fed does not want to admit a recession just yet.
So yeah, I agree with Lacey, they did it for a purpose. But I see a different purpose, it is politically easier to keep raising prices if you’re not anticipating a recession, than if you do.
Regardless, Hunt was certainly right that the likable commentary on the questions following the July meeting caused the stock market to go up that the Fed didn’t want.
“The other thing they’ve done is talk about an unemployment rate of 4.4 percent for next year which, as one reporter noted, will reach 1.3 million job losses,” Hunt noted.
He added: “The Fed is clearly ready, and they want market participants to understand that this is an important battle to win, and they will continue down the path. Of course we don’t know if they will stay of course, but they are in the current message. But it will take time. “.
Booth asked Lacey the main question
Booth: “Can the Fed raise interest rates and keep them at a high level, and keep them at a steady level? Looking back at monetary policy, we’ve never seen that happen before.”
Lacey: “No, I think the odds are a harder landing for the Fed. If you look at the Fed’s tightening since it was founded in 1913, about 90% of the [tightening cycles] led to a recession.”
“The Fed could make a soft landing as it did in 1966, but these expensive victories have led to more pain down the road. The prospect of a soft landing is a low-probability event. The Fed has put itself in this position.”
There is a lot in the video, click the link above to play it. Here is my take on the Federal Reserve’s GDP forecast.
A study of the federal GDP projections for 2022 and 2023
Scroll to continue
Please consider Optimistic Forecasts: A Study of Federal GDP Projections for 2022 and 2023
Every Fed participant predicts a smooth landing scenario for 2022 and 2023.
Gross domestic product
- The Fed has never intentionally anticipated recessions directly and avoided calls for recessions. But where we are right now, their forecasts for GDP for 2022 are beyond wild optimism and mean no recession.
- And there doesn’t seem to be a single recession forecast for 2023.
- What makes 2023 somewhat controversial is the fact that the federal GDP forecast ranges from Q4 to Q4, so technically there could be a short recession in 2023 followed by a recovery in the second half of 2023.
- For 2022, it’s clear. The Fed sees a recovery in the second half, not a recession as the following chart shows.
Real GDP 2021-2022
GDP projection analysis (figures in billions of dollars)
- Real GDP in the fourth quarter of 2021 was 19806
- Real GDP in the second quarter of 2022 was 19699
- For the Fed’s average forecast of 0.2 per year to occur, fourth-quarter GDP must be 19,846 or higher.
- This means that real GDP will need to rise by 0.90% in the second half. This would match the rise in GDP after Covid.
- On an annual basis, the Fed expects growth of more than 1.8 percent in the second half of 2022.
How likely is annual growth of 1.8 per cent in the second half alongside expectations of a Fed rate hike given that the third quarter appears to be heading for a crash?
Fed Double Letter
So yeah. There was a message. double message.
- We will keep hiking.
- We will offer a soft landing.
One thing Daniel, Lacey, and I agree on is that second place is not going to happen.
So the Fed added to its credibility problem with those predictions. But she is afraid to take a walk while acknowledging the economic recession, which I believe began in May.
This post originated at MishTalk.Com
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