Sooner or later, either Wall Street or the Federal Reserve has to blink, according to an Associated Press report.
Nearly a year into the Fed’s drive to quash inflation by hiking interest rates at a blistering pace, investors still don’t seem to fully believe what the Fed warns is coming next: Higher rates through the end of the year, which could sharply raise unemployment and slow growth.
Wall Street has a more sanguine view: With inflation cooling from painful highs, investors are betting that the Fed will stop hiking rates soon, pause for a bit and then start cutting rates toward the end of the year to combat what many on Wall Street expect will be a mild recession. That relatively optimistic view has helped propel the broad S&P 500 stock index up 4.4% so far this year.
Yet a host of Fed speakers last week underscored a contrasting message: They expect to raise their benchmark rate above 5%, modestly above Wall Street’s forecast. Doing so would likely lead to even higher borrowing rates for consumers and businesses, from mortgages to auto loans to corporate credit. What’s more, some Fed officials reiterated they plan to peg rates at a higher level through the end of this year.
