“The Fed is likely to think if they were to do 100 basis points, the reaction would be that they know that inflation is much worse than people think it is. And therefore, I think it would probably depress the markets even more than they were depressed last week,” he said.
US stocks last week saw their worst week since June after inflation in August cooled by less than anticipated. The Nasdaq Composite dipped roughly 5.5% and the S&P 500 plunged by 4.1%. The headline inflation rate of 8.3% missed expectations of 8.1%. Consumer price inflation has been lingering near a four-decade high.
The Treasury market has also sunk into bear territory this year, with yields surging while bond prices plummeted. The Fed-policy sensitive 2-year Treasury note yield on Tuesday reached 3.97%, a fresh 15-year high. The 10-year Treasury yield soared to 3.56%, a fresh 11-year high. The yield curve inversion is widely considered a warning of economic recession.
