Home Fixed interest Fed-induced recession odds are 99.9%, says BMO fixed income head

Fed-induced recession odds are 99.9%, says BMO fixed income head


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It will be almost impossible for the North American economy to avoid a recession because interest rates will have to rise much more to curb inflation, according to the head of fixed income in the Bank’s fund management division. from Montreal.

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“The probability of a recession is 99.9%,” Earl Davis said on BNN Bloomberg Television on Wednesday. “Why am I saying that? Central bankers actually want a recession.

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Davis, who is head of fixed income and money markets at BMO Global Asset Management, said a recession could easily drag into 2024. It won’t necessarily be a mild contraction, he said. , because unlike past bull cycles like 2018, the US Federal Reserve and other central banks are well behind the inflation curve and rates will need to stay higher for longer to reduce demand.

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“It could end up being a political mistake. But the playbook says you have to get a recession” to bring inflation down to acceptable levels, he said. “That’s the key thing the market has to go through.”

Two-year Treasury yields were above 4% early Wednesday afternoon, the highest since 2007, as traders awaited the Fed’s policy decision and the latest economic projections.