Odds on Wall Street are growing that the Federal Reserve will inadvertently trigger an economic recession as it moves to cool sizzling-hot inflation with a series of rate hikes.
"Equity and fixed income markets are both getting hammered today as expectations of an aggressive Fed are increasingly priced in," said Luke Tilley, chief economist at Wilmington Trust. "An aggressive Fed combined with record-low consumer sentiment increase the chances of a U.S. recession in the next 12 months."
In this Jan. 29, 2020 file photo, Federal Reserve Chair Jerome Powell pauses during a news conference in Washington.unnerved investors and prompted traders to revise their expectations for Fed rate hikes this year. Wall Street banks Barclays and Jeffries are now forecasting a 75-basis point hike – the first since 1994 – at the conclusion of the Fed's policy-setting meeting on Wednesday, while a majority of traders have penciled in a mega-sized rate increase in July.
"The U.S. central bank now has good reason to surprise markets by hiking more aggressively than expected in June," the Barclays strategists wrote in a note Friday. "We realize it is a close call and that it could play out in either June or July. But we are changing our forecast to call for a 75-basis point hike on June 15.
"A 75-basis point increase is not something that the committee is actively considering," Powell told reporters at the post-meeting press conference. But that was before the April and May inflation reports, which both came in hotter than expected, underscoring just how strong inflationary pressures in the economy still are and reviving the possibility of a previously unthinkable 75-basis point increase.
Although Fed policymakers are counting on finding that elusive sweet spot — known as a soft landing — history shows that the U.S. central bank often struggles to successfully thread the needle between tightening policy and preserving
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