SUMMARY
US Federal Reserve Chairman Jerome Powell’s “shock and awe” tightening strategy is a response akin to Volcker’s actions in the 1980s. While Powell may crush inflation, the costs will be considerable.
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Informamos que as comunicações verbais e por escrito do Citi podem estar em inglês, pois talvez não possamos fornecer comunicações relacionadas a serviços em todos os idiomas. Essas comunicações podem incluir, mas não estão limitadas a, acordos de contas, declarações e divulgações, mudanças nos termos ou taxas; ou qualquer serviço de sua conta. Se você precisar de ajuda em um idioma diferente do inglês, entre em contato conosco, pois temos serviços de idiomas que podem ser úteis para você.
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Please be advised that verbal and written communication from Citi may be in English as we may not be able to provide servicing related communications in all languages. These communications may include, but are not limited to, account agreements, statements and disclosures, change in terms or fees; or any servicing of your account. If you need assistance in a language other than English, please contact us as we have language services that may be of assistance to you.
Por favor, tenga en cuenta que las comunicaciones verbales y escritas de Citi podrían redactarse únicamente en inglés, ya que, tal vez, no podamos proporcionar comunicaciones relacionadas con los servicios en todos los idiomas. Estas comunicaciones podrían incluir, entre otras, contratos, divulgaciones y estados de cuenta, cambios en los términos o en los cargos, así como cualquier documento de mantenimiento de su cuenta. Si necesita ayuda en un idioma distinto al inglés, por favor, comuníquese con nosotros, ya que tenemos servicios de idiomas que podrían serle útiles.
Informamos que as comunicações verbais e por escrito do Citi podem estar em inglês, pois talvez não possamos fornecer comunicações relacionadas a serviços em todos os idiomas. Essas comunicações podem incluir, mas não estão limitadas a, acordos de contas, declarações e divulgações, mudanças nos termos ou taxas; ou qualquer serviço de sua conta. Se você precisar de ajuda em um idioma diferente do inglês, entre em contato conosco, pois temos serviços de idiomas que podem ser úteis para você.
请注意,花旗集团可能使用英文进行口头和书面通信,因为我们可能无法以所有语言提供与服务相关的通信。这些通信可能包括但不限于账户协议、账单与披露声明、条款或费用变更,或为您账户提供的任何服务。如果您需要英文以外的其他语言的帮助,请与我们联系,因为我们提供可能对您有帮助的语言服务。
US Federal Reserve Chairman Jerome Powell’s “shock and awe” tightening strategy is a response akin to Volcker’s actions in the 1980s. While Powell may crush inflation, the costs will be considerable.
Digesting the Fed’s news, stocks revisited their lowest levels of the year last week, mortgage rates rose to new highs, home sales fell for the 7th consecutive month and the US dollar soared to new 20-year highs.
The Fed is undertaking a near-term “pain maximizing” strategy. We see the probability of a US recession next year at 70% and we expect a material fall in employment. The pain inflicted on households and small businesses will have lingering negative impacts into 2024.
We strongly doubt that the Fed’s higher rate views, together with Quantitative Tightening (“QT”), are compatible with its expectation for positive growth in 2023.
History shows the Fed’s policy forecast can change abruptly and is secondary to the Fed achieving its economic goals. We can envision that the Fed will reverse policy later in 2023 after several months of major employment declines.
Given this outlook, investors should prioritize capital preservation and look to high quality fixed income in portfolios. Short-duration US investment grade fixed income opportunities now yield between 5% and 7% across various market segments. Among the assets we believe investors should consider are US Treasuries, investment grade bonds, municipal bonds and notes, and preferred securities.
Specifically on the equity side, our macro-outlook suggests that the next 6 months of equity returns remain highly uncertain, though we do not expect a severe collapse in markets akin to the 2007-08 period. For the time being, we believe there can be better risk/reward in strategies that can shield principal loss while generating income.
With the market pricing an elevated cost for buying protection out over the next year or two, this creates potential opportunities for suitable investors to earn a fixed coupon or use those funds to strategically accumulate positions in equities if dips occur. Of course, there are downside risks including loss of principal or changes to issuer credit quality, which should be understood before considering any strategy.
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