Morgan Stanley IM: Three Burning Questions Light the Recession Fuse

• The three burning questions are When, What and How?
• When will the Fed Stop tightening? The “when” serves as a buy signal for the market – though a potentially misguided one given the “long and variable lags” of policy tightening expected in 2023.
• What will be the terminal policy rate level? The “what” indicates a potential bottom and provides the discount rate for future cashflows.
• How long will the Fed hold at that level? The “how” informs us about duration risk and will help to balance a portfolio properly.
• All in all, the fuse has been lit and it remains to be seen whether the recession will be deep or mild, where the jobs market will be the key detriment.

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