Stock-market investors want the Fed to answer this crucial question when it meets this week

Multiple risks are raising the stakes in financial markets and for the U.S. economy as Federal Reserve policy makers prepare to gather this week.The Fed is widely expected to deliver a quarter-of-a-percentage point interest rate hike when its meeting concludes on Wednesday. The most crucial question facing investors is whether policy makers subsequently show a willingness to hold off on further rate rises in order to assess the damage from their year-long campaign to lower inflation.

Not everyone agrees, though: Wall Street veteran David Rosenberg points out that history shows such a shift in Fed policy doesn’t guarantee a stock rally.In just the past week alone, investors have seen fresh signs of sticky inflation even as the U.S. economy grew at a soft 1.1% annual pace in the first quarter, while concerns have flared over the U.S.

Those scenarios include the prospect that the U.S. economy may be settling into a period of stagflation combining slower growth combined with high inflation, or may be heading into a steeper downturn accompanied by more layoffs at a time when stress in the banking sector could spread and there are fears of a potential default if Congress is unable to raise the $31.4 trillion debt ceiling.

Allspring is avoiding making “big direction bets on the market” in favor of relative-value trades in its multi-asset portfolios, and is adding more 10-year government-bond futures TY00 on the view that “the risks to the U.S. will ultimately resolve themselves,” he said. Meanwhile, there could be “big-time volatility in markets, whether in equity prices or credit spreads jumping up or down.”

“This next Fed meeting is an important one because if policy makers raise rates by 25 basis points and don’t signal a pause, markets are not going to like this,” said Greg Faranello, head of U.S. rates at AmeriVet Securities in New York, a veteran-owned broker dealer. “I think they should take the last 25 and stop to evaluate things.

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