The Federal Reserve’s battle to get inflation down from a 40-year high likely means it will raise interest rates until the U.S. economy slows, strategists at the BlackRock Investment Institute warned on Tuesday.
“The Fed seems dead set on raising rates this year to levels that, in our view, would clearly slow the economy,” Jean Boivin, head of the BlackRock Institute, and his team of strategists wrote, in a Tuesday note.
Chairman Jerome Powell last week raised the central bank’s policy rate by 75 basis points — its biggest rate hike in almost three decades — while signaling a willingness to raise its benchmark rate to nearly 4% next year, even as the Fed has revised its economic growth forecasts lower (see chart) in recent months.
The central bank “seems to be responding to the ‘politics’ of current high inflation,” with its focus on “overheating demand,” rather than the “unusually low production capacity” due to an “incomplete” pandemic restart, Boivin’s team wrote.
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“This is why we don’t see the risk asset retreat as a reason to buy the dip — and expect more volatility ahead.”
Equity strategists at Morgan Stanley MS,
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Stocks pushed higher Tuesday to kick off summer, but the Dow Jones Industrial Average DJIA,
Much of the $53 trillion U.S. fixed income markets also has been having a historically bad year, with total returns deeply in negative territory.