After raising borrowing costs by 525 basis points since March 2022, the U.S. central bank is widely expected to keep rates unchanged at the conclusion of its meeting next week.that policymakers are unlikely to raise rates any further, bringing an end to the central bank's most aggressive monetary policy tightening cycle in decades.
Investors with a more bearish view, however, say it is only a matter of time before higher rates tighten economic conditions and bring a downturn. The S&P 500 is already up over 16% this year, aided in part by a U.S. economy that has stayed resilient in the face of higher interest rates. Though most investors believe a recession is unlikely in 2023, a slowdown next year remains a possibility for some market participants. One worrying recession signal has been theThe Fed will give its policy statement on Wednesday, with odds at 97% that it will keep rates unchanged, according to the CME FedWatch Tool, which tracks bets on futures tied to the central bank's policy rate.
Investors are pricing in a small chance of a cut as early as the Fed's January meeting, with expectations of a cut at about 35% for May, according to the CME data.Analysts at Oxford Economics forecast further downside for global earnings, noting that stocks "have typically delivered far weaker returns following the final Fed rate hike when it has coincided with an EPS downturn."