The Federal Reserve’s heavily telegraphed move to slow its pace of monetary tightening next week risks sending a message to markets that the central bank is on track to rein in inflation and steer the economy into a soft landing. Investors would do well to reassess.
Regardless of the pace of the Fed’s monetary tightening, the more significant message the economy is sending now is that the central bank will likely need to raise interest rates above the range of around 5% that markets expect to combat the current a bout of inflation to return closer to its target level. And that, in turn, suggests that at least a mild recession looks increasingly necessary for prices to finally cool.
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