Please ensure Javascript is enabled for purposes of website accessibility

September FOMC: Fed Still Hopes For A Soft Landing

  • Tweet
  • Share on LinkedIn
  • Share via email
  • Print
  • Download

September 2022

  • The Federal Reserve Open Market Committee (FOMC) raised its policy rate by 75 bps to 3.0-3.25% at the September 2022 meeting. This move largely met market expectations.
  • The Summary of Economic Projections (SEP) featured an updated forecast of the fed funds rate, incorporating an additional cumulative 125 bps hike by year-end 2022, and another 25-bps hike in 2023, with the target fed funds rate peaking at 4.6%. The Committee appeared somewhat split on the 2022 forecast, however, with some favoring a cumulative 100 bps of hikes by year-end. The FOMC indicated they then expect to lower the policy rate to 3.9% in 2024.
  • By front-loading hikes in 2022, and keeping policy rate in “restrictive” territory until at least 2025, the Fed aims to short-circuit a so-called “wage-price spiral”: a scenario in which rising prices and a strong labor market induce employees to keep asking for wage raises, which in turns continues to push up prices.
  • In exchange for tolerating an above-target inflation in 2022 and 2023, the FOMC expects their actions to induce only a mild recession. Further, the FOMC expects its course of action to be sufficient to bring inflation down to target (2.0%) within 2 years. The SEP projects GDP growth of almost zero (but not negative) in 2022 and just above 1% in 2023; unemployment to peak at 4.4% in 2023-2024.
  • The Fed’s own forecast of a mild recession may prove too optimistic. Historically, increases in unemployment rate have been very persistent, meaning that once the unemployment rate begins to rise, it’s hard to stop it from increasing. Raising policy rate by almost 450 bps in one year but keeping unemployment from rising by more than 100 bps is a very challenging task for the central bank, one that history has shown to have a low probability of success.
  • Markets appear sanguine so far that the Fed may avoid a sharp recession, but that could change if/when economic data weakens, and unemployment begins to rise. Following the FOMC event, the fed funds futures quickly adjusted close to the SEP projections, and the US Treasury curve changed only modestly, on net. Equity markets seemed to respond to the FOMC event by declining over 1% initially but reversing the declines during Powell’s press conference, though they weakened again into the day’s close.
  • Retail investors appear to have been a broad source of support for the equity markets, but this could change as the Fed continues to raise rates. Strong consumer and corporate balance sheets appear to have helped shield US equities from even greater declines in 2022 as rates rose. However, this could change as the Fed continues to raise rates. However, as excess savings are worked through, retail spending may weaken before inflation declines meaningfully, pressuring corporate valuations lower.
  • Higher US policy rate is expected to translate into a stronger USD, all else equal. This could present challenges to emerging market economies. Those with large USD-denominated sovereign or corporate debt liabilities that may need to be rolled over soon at a more onerous cost. US multinationals will also likely see margin compression as a result of the stronger USD, all else equal.

Fed Funds Rate, Inflation and US Treasury 2 Year Yield

Despite aggressive hikes in 2022, the inflation-policy rate remains gaping


This material should not be considered as investment advice or a recommendation of any investment manager or account arrangement and should not serve as a primary basis for investment decisions. Any statements and opinions expressed are as at the date of publication, are subject to change as economic and market conditions dictate, and do not necessarily represent the views of BNY Mellon or any of its affiliates. The information has been provided as a general market commentary only and does not constitute legal, tax, accounting, other professional counsel or investment advice, is not predictive of future performance, and should not be construed as an offer to sell or a solicitation to buy any security or make an offer where otherwise unlawful. The information has been provided without taking into account the investment objective, financial situation or needs of any particular person. BNY Mellon and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This is not investment research or a research recommendation for regulatory purposes as it does not constitute substantive research or analysis. To the extent that these materials contain statements about future performance, such statements are forward looking and are subject to a number of risks and uncertainties. Information and opinions presented have been obtained or derived from sources which BNY Mellon believed to be reliable, but BNY Mellon makes no representation to its accuracy and completeness. BNY Mellon accepts no liability for loss arising from use of this material.

All investments involve risk including loss of principal.

Not for distribution to, or use by, any person or entity in any jurisdiction or country in which such distribution or use would be contrary to local law or regulation. This information may not be distributed or used for the purpose of offers or solicitations in any jurisdiction or in any circumstances in which such offers or solicitations are unlawful or not authorized, or where there would be, by virtue of such distribution, new or additional registration requirements. Persons into whose possession this information comes are required to inform themselves about and to observe any restrictions that apply to the distribution of this information in their jurisdiction.

Issuing entities

This material is only for distribution in those countries and to those recipients listed, subject to the noted conditions and limitations: For Institutional, Professional, Qualified Investors and Qualified Clients. For General Public Distribution in the U.S. Only. • United States: by BNY Mellon Securities Corporation (BNYMSC), 240 Greenwich Street, New York, NY 10286. BNYMSC, a registered broker-dealer and FINRA member, and subsidiary of BNY Mellon, has entered into agreements to offer securities in the U.S. on behalf of certain BNY Mellon Investment Management firms. • Europe (excluding Switzerland): BNY Mellon Fund Management (Luxembourg) S.A., 2-4 Rue EugèneRuppertL-2453 Luxembourg. • UK, Africa and Latin America (ex-Brazil): BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. • South Africa: BNY Mellon Investment Management EMEA Limited is an authorised financial services provider. • Switzerland: BNY Mellon Investments Switzerland GmbH, Bärengasse 29, CH-8001 Zürich, Switzerland. • Middle East: DIFC branch of The Bank of New York Mellon. Regulated by the Dubai Financial Services Authority. • Singapore: BNY Mellon Investment Management Singapore Pte. Limited Co. Reg. 201230427E. Regulated by the Monetary Authority of Singapore. • Hong Kong: BNY Mellon Investment Management Hong Kong Limited. Regulated by the Hong Kong Securities and Futures Commission. • Japan: BNY Mellon Investment Management Japan Limited. BNY Mellon Investment Management Japan Limited is a Financial Instruments Business Operator with license no 406 (Kinsho) at the Commissioner of Kanto Local Finance Bureau and is a Member of the Investment Trusts Association, Japan and Japan Investment Advisers Association and Type II Financial Instruments Firms Association. • Australia: BNY Mellon Investment Management Australia Ltd (ABN 56 102 482 815, AFS License No. 227865). Authorized and regulated by the Australian Securities & Investments Commission. • Brazil: ARX Investimentos Ltda., Av. Borges de Medeiros, 633, 4th floor, Rio de Janeiro, RJ, Brazil, CEP 22430-041. Authorized and regulated by the Brazilian Securities and Exchange Commission (CVM). • Canada: BNY Mellon Asset Management Canada Ltd. is registered in all provinces and territories of Canada as a Portfolio Manager and Exempt Market Dealer, and as a Commodity Trading Manager in Ontario.


BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries generally. • Insight Investment - Insight North America LLC (INA) is a registered investment adviser under the Investment Advisers Act of 1940 and regulated by the US Securities and Exchange Commission. INA is part of 'Insight' or 'Insight Investment', the corporate brand for certain asset management companies operated by Insight Investment Management Limited including, among others, Insight Investment Management (Global) Limited (IIMG) and Insight Investment International Limited (IIIL) and Insight Investment Management (Europe) Limited (IIMEL). Insight is a subsidiary of The Bank of New York Mellon Corporation. • Newton Investment Management - Newton” and/or the “Newton Investment Management” brand refers to the following group of affiliated companies: Newton Investment Management Limited (NIM) and Newton Investment Management North America LLC (NIMNA). NIM is incorporated in the United Kingdom (Registered in England no. 1371973) and is authorized and regulated by the Financial Conduct Authority in the conduct of investment business. Both Newton firms are registered with the Securities and Exchange Commission (SEC) in the United States of America as an investment adviser under the Investment Advisers Act of 1940. Newton is a subsidiary of The Bank of New York Mellon Corporation. • Alcentra - The Bank of New York Mellon Corporation holds the majority of The Alcentra Group, which is comprised of the following affiliated companies: Alcentra Ltd. and Alcentra NY, LLC. which are registered with the U.S. Securities & Exchange Commission under the Investment Advisers Act of 1940. Alcentra Ltd is authorized and regulated by the Financial Conduct Authority and regulated by the Securities Exchange Commission. • ARX is the brand used to describe the Brazilian investment capabilities of BNY Mellon ARX Investimentos Ltda. ARX is a subsidiary of BNY Mellon. • Dreyfus is a division of BNY Mellon Investment Adviser, Inc. (BNYMIA) and Mellon Investments Corporation (MIC), each a registered investment adviser and subsidiary of BNY Mellon. Mellon Investments Corporation is composed of two divisions; Mellon, which specializes in index management and Dreyfus which specializes in cash management and short duration strategies. • Walter Scott & Partners Limited (Walter Scott) is an investment management firm authorized and regulated by the Financial Conduct Authority, and a subsidiary of BNY Mellon. • Siguler Guff - BNY Mellon owns a 20% interest in Siguler Guff & Company, LP and certain related entities (including Siguler Guff Advisers LLC).

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. All information contained herein is proprietary and is protected under copyright law.




GU-305-30-April 2023