Assessing the Fed’s CCAR Scenarios

2,262 views
1,966 views

Published on

Mark Zandi and the Moody's Analytics team dissect the CCAR scenarios and consider both the possible narratives driving them and their probability of occurring

Published in: Economy & Finance, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
2,262
On SlideShare
0
From Embeds
0
Number of Embeds
80
Actions
Shares
0
Downloads
93
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Assessing the Fed’s CCAR Scenarios

  1. 1. Assessing the Fed’s CCAR Scenarios
  2. 2. CCAR Baseline and Downside Scenarios Real GDP % change, annual rate 6 4 2 0 -2 -4 Baseline Adverse Severely Adverse -6 -8 -10 08 09 10 11 12 13E 14F 15F 16F Sources: BEA, Federal Reserve, Moody’s Analytics 2
  3. 3. Moody’s Baseline Is More Optimistic… Real GDP % change, annual rate 5 0 -5 MA Baseline Fed Baseline -10 08 09 10 11 12 13E 14F 15F 16F Sources: BEA, Federal Reserve, Moody’s Analytics 3
  4. 4. …But Moody’s S4 Is Similar to the Severe Adverse Real GDP % change annual rate 5 -4.3% 0 Numbers are peakto-trough % decline -5 -4.7% -4.3% MA S4 Fed Severely Adverse -10 08 09 10 11 12 13E 14F 15F 16F Sources: BEA, Federal Reserve, Moody’s Analytics 4
  5. 5. Severe Adverse Driven by a Euro Zone Crackup… Euro zone real GDP, % change annual rate 6 3 0 -3 Baseline Adverse Severely Adverse -6 -9 -12 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 5
  6. 6. …Much Weaker Emerging Economies… Developing Asia real GDP, % change annual rate 18 Baseline 15 Adverse 12 Severely Adverse 9 6 3 0 -3 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 6
  7. 7. …A Resumption of the Housing Crash… House prices, % change annual rate 20 Baseline 15 Adverse Severely Adverse 10 5 0 -5 -10 -15 -20 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 7
  8. 8. …And Significant Aversion to Credit Risk BBB corporate bond yield less 10-yr Treasury yield, ppt 6 Baseline Adverse Severely Adverse 5 4 3 2 1 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 8
  9. 9. Adverse Driven by a Surge in LT Treasury Rates… 10-yr Treasury bond rate, % 6 Adverse 5 4 Baseline 3 2 1 Severely Adverse 0 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 9
  10. 10. …Sharply Higher Mortgages Rates… 30-yr fixed mortgage rate, % 8 Adverse 7 6 Baseline 5 4 Severely Adverse 3 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 10
  11. 11. …And Much Weaker Real Estate Markets Commercial real estate prices, % change annual rate 50 40 30 20 10 0 -10 -20 -30 -40 -50 -60 Baseline 08 09 10 11 12 Adverse 13E 14F Severely Adverse 15F 16F Sources: Federal Reserve, Moody’s Analytics 11
  12. 12. Fed Maintains Its’ ZIRP in Both Scenarios… 3-mo Treasury bill rate, % 2.5 Baseline Adverse Severely Adverse 2.0 1.5 1.0 0.5 0.0 -0.5 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 12
  13. 13. …Resulting in Different Shaped Yield Curves 10-yr Treasury yield less 3-mo Treasury bill, ppt 6 Adverse 5 4 Baseline 3 2 1 Severely Adverse 0 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 13
  14. 14. Unemployment Rises Sharply in Both Scenarios… Unemployment rate % 12 11 10 9 8 7 Adverse Severely Adverse Baseline 6 5 4 08 09 10 11 12 13E 14F 15F 16F Sources: BLS, Federal Reserve, Moody’s Analytics 14
  15. 15. …Resulting in Lower Inflation CPI % change, annual rate 3 2 1 0 Baseline Adverse Severely Adverse -1 13E 14F 15F 16F Sources: BLS, Federal Reserve, Moody’s Analytics 15
  16. 16. Stock Prices Plunge in Both Scenarios… Dow Jones Industrial Average 22,000 Baseline Adverse Severely Adverse 19,000 16,000 13,000 10,000 7,000 08 09 10 11 12 13E 14F 15F 16F Sources: CBOE, Federal Reserve, Moody’s Analytics 16
  17. 17. …Financial Volatility Surges… S&P 500 Volatility Index 90 Baseline Adverse Severely Adverse 80 70 60 50 40 30 20 10 08 09 10 11 12 13E 14F 15F 16F Sources: CBOE, Federal Reserve, Moody’s Analytics 17
  18. 18. …And the U.S. $ Rises In Value Euro/USD exchange rate 1.7 Baseline Adverse Severely Adverse 1.6 1.5 1.4 1.3 1.2 1.1 1.0 08 09 10 11 12 13E 14F 15F 16F Sources: Federal Reserve, Moody’s Analytics 18
  19. 19. Timeline of Moody’s Analytics CCAR Scenarios U.S. National November 4th 6 largest countries November 6th 40 smaller countries November 7th 9 global regions November 7th U.S. states and metros November 8th U.S. house prices November 8th CreditForecast® November 15th 19
  20. 20. economy.com For more information, visit: economy.com/ccar Or, contact us directly at: 610.235.5299 help@economy.com
  21. 21. © 2013 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling. 21

×