Putting 99.9% odds of a recession ‘a bit too intense’: Ed Devlin

Ed Devlin, the former head of Canadian Portfolio Management at Pimco, said betting on a 99.9 per cent chance of a US Federal Reserve recession is “high in probability”.

“I mean, put it this way: This says it’s one in 1,000 (the chance there won’t be a recession),” Devlin added in an interview Thursday.

“I would be more than happy to bet anyone or give anyone $100 when there is a recession, if you give me $100,000 when there isn’t. You know, it seems a bit extreme in terms of probability.”

US-Driven Recession Risks

In an interview Wednesday morning, Earl Davis, head of fixed income at BMO Global Asset Management, said it would be nearly impossible to avoid a recession as the US Federal Reserve continues its aggressive rate-raising strategy in an effort to control inflation. .

“The probability of a recession is 99.9 percent,” he said.

“Why would I say that? Central bankers actually want a recession.”

BMO’s Fixed Income Head Sees ‘99.9%’ Chances of a Fed Recession

Earl Davis, Head of Fixed Income and Capital Markets at BMO Global Asset Management, joins BNN Bloomberg to talk about the opportunity for a recession.

It “may end up being a policy mistake,” Davis said. But the game’s guide says you have to get a slump “in order to bring inflation back to manageable levels.”

Devlin said that while he thought a recession was “more likely than not,” he estimated the odds of it happening around two-thirds or three-quarters.

“We all know that monetary policy runs with a lag of 12 to 18 months before it really discovers the impact on the economy, yet I don’t think central banks can sit politically if they think they’ve done enough tightening and they want to wait,” said Devlin, founder and managing partner of Devlin. Toronto-based investment Devlin Capital: “They usually wait and see, you know, the effect of the tightening on the economy.”

“I think they don’t have that luxury this time around. They are forced to raise rates, you know, if immediate inflation is much higher than their target.”

Powell indicates more pain to come

On Wednesday, the US Federal Reserve raised its key interest rate target by three-quarters of a point for the third time in a row.

During a press conference, US Federal Reserve Chairman Jerome Powell indicated that there will be more increases, and once again acknowledged that the central bank’s moves will cause some Americans pain.

“We’ve just moved I think probably as low as what might be limiting, and certainly from my point of view and from the committee’s point of view, there are ways we have to go,” Powell said.

Central banks around the world are racing to raise their policy rates as persistent imbalances between supply and demand fuel hyperinflation.

This week alone, central banks raised interest rates in the UK, the Philippines, Switzerland, Norway and Sweden

“Inner Paul Volcker”

Devlin said he believes central banks are channeling “inner Paul Volcker,” the former US Federal Reserve chairman who treated high levels of US inflation in the 1970s and 1980s at the expense of economic growth.

“What I mean by that is when you experience stagflation, what you do is fight inflation and then worry about growth later,” Devlin said.

“The good news, at least for now, is that with monetary policy rates around 4 per cent higher, if and when the central bank realizes that recession is upon us and that inflation may fall more quickly than they expected, they can always lower rates. At least They have some room to cut.”

However, Devlin said the worst case scenario would be if they “slow down too much with very high interest rates”.

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