FED's no-surprise decision: 'Economists are not projecting recession'-CFRA Stovall

Record ID: 1671273

  • Title: FED's no-surprise decision: 'Economists are not projecting recession'-CFRA Stovall
  • Date: 4th May 2022
  • Summary: ALLENTOWN, PENNSYLVANIA, UNITED STATES (MAY 4, 2022) (REUTERS) (SOUNDBITE) (English) CFRA RESEARCH, CHIEF INVESTMENT STRATEGIST, SAM STOVALL, SAYING: “The Fed realizes that inflation has gotten ahead of the Fed's efforts, with the most recent reading at an eight and a half percent year on year rise. And this compares with an average inflationary reading of only about three and a half percent going back to the late 1940s. So definitely the Fed is behind the curve. It thought that inflation would be transitory, meaning that it would be short lived, but actually it's a bit stickier than anticipated. And that's why the Fed needs to be aggressive to start to get ahead of the curve.” WHITE FLASH (SOUNDBITE) (English) CFRA RESEARCH, CHIEF INVESTMENT STRATEGIST, SAM STOVALL, SAYING: “What they're hoping to accomplish is to engineer a soft landing. By that I mean what we saw in 1994, 7 rate increases in 13 months did not throw the economy into recession, but rather caused it to slow. And so that's what they're hoping to do this time as well." WHITE FLASH (SOUNDBITE) (English) CFRA RESEARCH, CHIEF INVESTMENT STRATEGIST, SAM STOVALL, SAYING: “Our economists are not projecting recession at this point. While we do think that the second reading of first quarter GDP will actually come in a little bit weaker than the first one, the first one was -1.4, based on the most recent trade imbalance, we think it'll be (minus) 1.5, but we do expect the second through fourth quarters of this year to post GDP increases of more than 3% each. So right now, we are not looking for two successive quarters of GDP declines, which is the definition of a recession.” WHITE FLASH (SOUNDBITE) (English) CFRA RESEARCH, CHIEF INVESTMENT STRATEGIST, SAM STOVALL, SAYING: “Well, the risk is that it throws us into recession. Right now, the expectations are that the employment rate should stay at 3.6%. When we get our reading for the month of April this coming Friday, and likely to see about 380,000 new jobs added. So, because of the strength of the employment picture, that's why we don't anticipate a recession.” (SOUNDBITE) (English) CFRA RESEARCH, CHIEF INVESTMENT STRATEGIST, SAM STOVALL, SAYING: “Well, more times than not, the Fed has thrown the economy into recession. We have had a few periods, however, in which we've had a soft landing, such as in 1994. But usually it's not just the Fed alone that throws the economy into recession and the stock market into a bear mode. Usually it is a rising interest rate environment from the Fed, but also an inverted yield curve. It's traditionally then accompanied by geopolitical tensions such as the Hungarian uprising in 1956 or the OPEC crisis in 1973, the financial tech bubble bursting in 2000, etc.. So, if we get higher rates, inverted yield curve, geopolitical events, that could very well lead to a recession later on.”
  • Embargoed: 18th May 2022 19:30
  • Keywords: FED GDP Interest Rate recession
  • Location: VARIOUS
  • City: VARIOUS
  • Country: USA
  • Topics: Government/Politics,United States
  • Reuters ID: LVA002580104052022RP1
  • Aspect Ratio: 16:9
  • Story Text: The Federal Reserve on Wednesday (May 4), raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years, and said it would begin trimming its bond holdings next month as a further step in the battle to lower inflation.
    The decision was widely expected.
    "What they're hoping to accomplish is to engineer a soft landing,” said Sam Stovall, chief investment strategist at CFRA Research. “Our economists are not projecting recession at this point.”
    The U.S. central bank set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.
    Despite a drop in gross domestic product over the first three months of the year, "household spending and business fixed investment remain strong. Job gains have been robust," the rate-setting Federal Open Market Committee said in a statement following the end of its latest two-day policy meeting in Washington.
    Inflation "remains elevated" with the war in Ukraine and new coronavirus lockdowns in China threatening to keep pressure high, it said. "The Committee is highly attentive to inflation risks."
    The statement said the Fed's balance sheet, which soared to about $9 trillion as the central bank tried to shelter the economy from the COVID-19 pandemic, would be allowed to decline by $47.5 billion per month in June, July and August, and the reduction would increase to as much as $95 billion per month in September.
    Policymakers did not issue fresh economic projections after this week's meeting, but data since their last gathering in March have given little sense that inflation, wage growth, or a torrid pace of hiring had begun to slow.
    (Production: Kyoko Gasha)
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