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On A Recession Doorstep…

A broad sell-off sent U.S. stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the coming months.

This is the last inflation report before the Fed’s policy meeting next week. Investors had hoped the Fed would have some reason to raise rates less dramatically. But the Fed is determined to quash inflation despite the risk of pushing the economy into a recession. And Tuesday’s report dampens hopes that inflation has already peaked.

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, with a 33% probability of a super-sized, full-percentage-point increase to the Fed funds target rate. The central bank’s target range is currently 2.25 per cent to 2.50 per cent

In a note following the August CPI data, Goldman Sachs sees a more aggressive Federal Reserve.

“We have raised our forecast for the Fed’s December meeting to a 50bp rate hike (vs. 25bp previously). We now expect a 75bp hike in September followed by 50bp hikes in November and December, which would take the funds rate to 4-4.25 per cent by the end of the year.”

With hopes of a “Fed pivot” firmly dashed, all three major U.S. stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops since June 2020 during the throes of the COVID-19 pandemic. The VIX rose more than 14% to 27.27.

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Written by Walk The World

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  1. People at work always look at me like I'm a lunatic when I say the economy on on its way down now 1 day into Americas Dow weakening they all say "how could you see this coming"……I surprised its taken this long to happen it actually scared me how share traders couldn't see the writing on the wall

  2. 4 score and 4% interest rates and above our FED fathers brought 4th on this economy a new recession, Now we are engaged in a great economic war testing our economy or any economy like China and so dedicated, can out endure us.

    … I need to work on my 4% club dance moves.

  3. So if the RBA follows the Fed in raising rates we will have a 1.75% increase by 2023 putting the RBA rate at around 4%. If the RBA does not follow the Fed the dollar falls and we import even more inflation. Bad times coming for most

  4. After America’s Cpi read earlier today has totally changed everyone’s earlier opinion that inflation we drop easily and therefore interest rates wouldn’t have to go much higher than neutral. Inflation is inbeded into food / wages and rent etc, and less about “ it’ll simply drop outside the pandemic “ . This is very very bad . Getting rid of inflation will definitely be with us for a few years. House prices and stocks won’t handle that. Recessions all round probably the only thing to bring inflation under control the earliest and are a definite

  5. Something that is really interesting to watch is the resistance @$1700 for gold. I thought today or all days would be the day to see it crash through that barrier and no. I can't wait to see the US dollar start to fall and that looks like a way off yet.

  6. I believe the Fed’s goal is to trigger a MILD recession so it’s not a risk the economy could enter a recession, it’s an expected outcome. It’s a risk the economy does NOT enter a recession or that the recession is deep. History shows a recession is the only way to curb inflation in a short term fashion and kill-off zombie companies and consumer excess. As a cohort, consumers just have too much wealth as they clearly are not curbing spending despite higher prices and low wage growth. I’d love live in the world of unicorns and rainbows but the simple fact is, this is going to be painful. You can blame the trillions of dollars printed to boost assets and helicopter money when it wasn’t needed. As I’ve said before, I have nothing but contempt for the heads of the reserve banks in Australia and the US.

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