Last week, the Fed didn’t just act in line with expectations of the third consecutive 75-bps interest rate hike; it also set expectations for further aggressive rate hikes until inflation is controlled. Moreover, Fed Chairman Jerome Powell acknowledged the economic pain this rapid monetary tightening may cause. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” he said.
According to a model created by JPMorgan Chase & Co. strategists, S&P 500’s 6.5% rout since the Fed turned extremely hawkish last week implies a 92% probability of U.S. recession, up from 51% in August. With the fears of an economic slowdown and market volatility stuck in a vicious feedback loop, businesses seem to brace themselves for a rough ride ahead.
