Risk matrix and the Fed

Moody's Analytics just updated its "What Could Go Wrong" matrix, which maps risks by likelihood and economic severity over the next 12–18 months. A few things stood out:

🔴 Four risks are on Negative Watch: an AI stock selloff, Fed missteps, Iran war escalation, and bond market turmoil. Notice that two of them (Fed missteps, bond market turmoil) tie directly to this week's meeting.

🔵 Newly added: a major AI cyberattack and a debt limit debacle.

⚠️ Highest severity (far right): a global pandemic, Russia-Ukraine expanding, mass deportations, and a surge in AI-related job loss.

📈 Higher likelihood, lower severity (upper left): a crypto crash, a more K-shaped economy, precious metals falling, and Fed independence being impaired. These are the ones that can erode portfolios slowly.

🟢 One bright spot: private credit cratering is on Positive Watch, meaning that risk is easing.

AI shows up three times: market selloff, cyber risk, and job losses. It's the biggest tailwind in markets and a recurring source of risk at once.

This week, we have the FOMC meeting for October. The FOMC decides on rates this Wednesday, and markets are nearly unanimous: about 90% odds of holding at 3.75–4.00%, up from 85% a week ago. A hold is the consensus. The real question is the tone of the statement and the press conference.

A steady Fed doesn't mean a risk-free environment. Rates may stay put, but the risks keep moving.

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