At present, the Atlanta Fed's GDP now predicts that the quarter on quarter (QoQ) annual rate of 1.1% in Q1 in 2022. According to the frb-us model, the current market expected interest rate increase path (a total of 275bp) may cause the US economy to fall into recession in Q2 of 2023. If interest rates were raised more aggressively, the recession would last longer. If the interest rate is raised moderately or moderately, and the maximum decline of GDP is 0.6%, the recession may be avoided, but the high oil and gas prices will increase the additional recession risk.
On the other hand, the upside down of long-term and short-term interest rate spreads in the United States can also indicate the rhythm of monetary policy of the Federal Reserve. According to the historical law, after the 10Y 3M upside down, the Federal Reserve will no longer raise interest rates, which means that the Federal Reserve needs to stop raising interest rates before the three-month and 10-year upside down, that is, Q4 this year. A safer choice is to start cutting interest rates immediately after the upside down to avoid economic recession. This also means that the current overly aggressive interest rate hike is expected to face a correction in the future.
Risk tip: US inflation exceeds expectations; US fiscal stimulus exceeded expectations; US monetary policy tightening exceeded expectations
