Although that’s a slowdown from the recent streak of 75-basis-point hikes, the probability model implies that markets already see rates as too restrictive, meaning there could be a Fed-induced recession, or as Colas calls it, a “Powell recession.”
“Chair Powell will almost certainly have to answer a question about the likelihood of a recession at his post-FOMC press conference next week. He might cite the NY Fed’s model and say ’38 percent.’ But, based on the model’s history, the real answer is ‘close to 100 percent,'” Colas warned.
The fear of a recession has wreaked havoc on stocks all year, with the S&P 500 dipping 17% from levels in January amid rising inflation and aggressive Fed rate hikes. The central bank has raised rates by 375 basis points so far this year to rein in high prices, a level that risks overtightening the economy, market commentators say.
