{"id":1653429,"date":"2022-09-22T12:55:47","date_gmt":"2022-09-22T16:55:47","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1653429"},"modified":"2022-09-22T12:57:33","modified_gmt":"2022-09-22T16:57:33","slug":"the-fed-just-predicted-a-fairly-lousy-economy-and-the-markets-noticed","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/the-fed-just-predicted-a-fairly-lousy-economy-and-the-markets-noticed\/","title":{"rendered":"The Fed Just Predicted a Fairly Lousy Economy\u2014and the Markets Noticed"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">22<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fthe-fed-just-predicted-a-fairly-lousy-economy-and-the-markets-noticed%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1653429&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p>The Fed&#8217;s prognostications on the economy predict it will be flat to moribund.<\/p>\n<div>\n<p><em>Commentary<\/em><\/p>\n<p>The <a href=\"https:\/\/www.theepochtimes.com\/t-federal-reserve\">Federal Reserve<\/a> (Fed) announced on Sept. 21 that it raised <a href=\"https:\/\/www.theepochtimes.com\/t-interest-rates\">interest rates<\/a> by 75 basis points (bps), or three-quarters of a percentage point.<\/p>\n<p>The decision came a day after the Federal Reserve Bank of Atlanta dropped its much-watched estimate of third-quarter 2022 <a href=\"https:\/\/www.theepochtimes.com\/t-gdp\">GDP<\/a> (\u201c<a href=\"https:\/\/www.atlantafed.org\/cqer\/research\/gdpnow?panel=4\">GDP Now<\/a>\u201c) to just 0.3 percent on Sept. 20, after <a href=\"https:\/\/www.census.gov\/construction\/nrc\/pdf\/newresconst.pdf\">residential\u00a0fixed investment disappointed,\u00a0<\/a>printing at -1.28 percent, when the Atlanta Fed had anticipated it to print at +0.3 percent. (Move the cursor over each bar,<a href=\"https:\/\/www.atlantafed.org\/cqer\/research\/gdpnow?panel=3\"> here,<\/a> to see the interplay of the \u201cGDP Now\u201d elements.)<\/p>\n<figure id=\"attachment_4746647\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/09\/21\/atlanta-fed_subcomponent-contributions-to-gdpnow-real-gdp-growth-forecasts.jpeg\"><figcaption class=\"wp-caption-text\"><noscript><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4746647\" src=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/09\/21\/atlanta-fed_subcomponent-contributions-to-gdpnow-real-gdp-growth-forecasts-600x462.jpeg\" alt=\"Epoch Times Photo\" width=\"600\" height=\"462\" \/><\/noscript><\/figcaption><\/a> (\u201cGDP Now\u201d release date components for third-quarter 2022 GDP)<\/figure>\n<p>The 75 basis-point interest rate increase was largely priced into the market, and most observers expected it. <a href=\"https:\/\/www.marketwatch.com\/story\/why-stock-market-investors-fear-a-full-percentage-point-fed-rate-hike-would-unnerve-wall-street-11663695546\">Some anticipated\u2014<\/a>and feared\u2014a 100 basis-point hike, or 1 percent. Nevertheless, the market responded negatively to the rate hike, and the Dow Jones Industrials Average fell by 1.7 percent. The benchmark S&#038;P 500 Index fell the same percentage amount.<\/p>\n<p>It appears that what troubled the market was the Fed\u2019s\u00a0 disappointing so-called \u201c<a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/files\/fomcprojtabl20220921.pdf\">dot plots,\u201d<\/a>\u00a0formally the \u201cSummary of Economic Projections,\u201d also released on Sept. 21, which is prepared by members of the Federal Open Market Committee, the Fed\u2019s policy-making arm, and their staffs.<\/p>\n<p>The <a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/fomcprojtabl20220921.htm\">dot plots<\/a> are\u00a0basically prognostications as to the future direction of the <a href=\"https:\/\/www.theepochtimes.com\/t-economy\">economy<\/a> at year-end in the current and three future years and for the longer term, analyzing gross domestic product (GDP), unemployment, inflation, and interest rates.<\/p>\n<figure id=\"attachment_4747116\" class=\"wp-caption alignnone\"><a href=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/09\/22\/Screenshot-61-1200x531.png\"><img loading=\"lazy\" decoding=\"async\" class=\"lazy  wp-image-4747116\" src=\"https:\/\/www.theepochtimes.com\/assets\/themes\/eet\/images\/white.png\" data-src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/Screenshot-61-600x266-1.png\" alt=\"Epoch Times Photo\" width=\"954\" height=\"423\" \/><figcaption class=\"wp-caption-text\"><noscript><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-4747116\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/Screenshot-61-600x266-1.png\" alt=\"Epoch Times Photo\" width=\"954\" height=\"423\" \/><\/noscript><\/figcaption><\/a> (Summary of Federal Reserve projections)<\/figure>\n<h3>Obeservations<\/h3>\n<p>None of the projections are good. As seen in the rightmost set of columns, the range of GDP went from negative 0.3 percent in 2023 to 2.6 percent 2024. What\u2019s called the \u201ccentral tendency,\u201d where most of the estimates tend to be (the three highest and the three lowest are thrown out)\u2014and the best estimate, in my view\u2014showed GDP growth of no more than 2 percent.<\/p>\n<p>I cannot help but think that even the central tendency range of estimates are sanguine. I suspect that inflation will have a longer tail than the 2023\/2024 declines that the central tendency would indicate. I expect that a federal funds rate, the rate the Fed charges member banks, will need to be in the range of 5\u20136 percent to ramp down the rate of inflation, especially if job strength (which we attribute mostly to a low labor participation rate) continues. \u00a0(The 5\u20136 percent we think necessary is the rate to keep\u00a0 inflation stable at the Fed\u2019s preferred 2 percent rate; it\u2019s what Fed watchers call the \u201cterminal rate.\u201d)<\/p>\n<p>The other aspect of bringing down inflation is reducing the Fed\u2019s balance sheet. While the Fed has increased the \u201cburn-off\u201d of Fed assets to $95 billion this month, we have long felt that amount was <a href=\"https:\/\/www.theepochtimes.com\/gdp-prints-at-a-technical-recession_4626874.html\">insufficient<\/a>. The assets\u2014comprised of Treasuries and mortgage-backed securities (MBS)\u2014can be sold instead of \u201cburned off.\u201d Fed Chair Jerome Powell did not rule out the possibility, at least for MBS, but not at this time, he said. Selling off the MBS would reduce the balance of cash in the economy, which creates some liquidity risk, but also reduces inflation.<\/p>\n<p>One aspect of the continuing rate hikes will be that the U.S. dollar will continue to dominate the currency markets. For multinationals, that will cause reduced earnings from overseas as the earnings are translated. As we wrote earlier this week, companies like Federal Express will suffer these kinds of translation losses as well as margin pressure.<\/p>\n<p>We revise our GDP estimate for this quarter to -0.5 percent.<\/p>\n<p>______________________________<br \/><em><strong>Disclosure:<\/strong>\u00a0The views expressed, including the outcome of future events, are the opinions of the firm and its management only as of Sept. 21, 2022, and will not be revised for events after this document was submitted to The Epoch Times editors for publication.\u00a0 Statements herein do not represent, and should not be considered to be, investment advice. You should not use this article for that purpose. This article includes forward looking statements as to future events that may or may not develop as the writer opines. Before making any investment decision you should consult your own investment, business, legal, tax, and financial advisers. We associate with principals of Technometrica on survey work in some elements of our business.<\/em><\/p>\n<p><em>We have no stock, option, or similar derivative position in any of the companies mentioned, and have no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from The Epoch Times as a business columnist). I have no business relationship with any company whose stock is mentioned in this article.<\/em><\/p>\n<div class=\"author_wrapper\">\n<div class=\"one_author_block round\">\n<div class=\"top_row\">\n\t\t\t\t\t<a href=\"https:\/\/www.theepochtimes.com\/author-j-g-collins\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/09\/ttl7dayhcW_WEB_JGCollins.jpg\" alt=\"J.G. Collins\" \/><\/a><\/p>\n<p>Follow<\/p>\n<\/div>\n<p>J.G. Collins is managing director of the Stuyvesant Square Consultancy, a strategic advisory, market survey, and consulting firm in New York. His writings on economics, trade, politics, and public policy have appeared in Forbes, the New York Post, Crain\u2019s New York Business, The Hill, The American Conservative, and other publications.<\/p>\n<\/p><\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Fed&#8217;s prognostications on the economy predict it will be flat to moribund.Commentary The Federal Reserve (Fed) announced on Sept. 21 that it raised interest rates by 75 basis points<\/p>\n","protected":false},"author":1,"featured_media":1653433,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1653429","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1653429","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1653429"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1653429\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1653433"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1653429"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1653429"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1653429"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}