FX.co ★ Hopes for Wall Street's dream scenario dashed

Market participants no longer believe that the United States will be able to avoid a recession. The Federal Reserve’s monetary policy has cast a long and disturbing shadow over the world's largest economy. Now experts state that Wall Street's dream scenario is probably dead.

The stock market is unlikely to end the year on a positive note. The high probability that the US central bank will keep interest rates elevated longer than previously projected has dashed hopes that a recession is avoidable. The US economy is now beginning to feel the lagging effects of the Fed's persistently hawkish monetary policy. The situation is exacerbated by the confluence of several risk factors, thus raising concerns among investors that a positive scenario for the stock market and the economy is unraveling.

Now all eyes are on Fed Chairman Jerome Powell's speech at the upcoming press conference, which is expected to completely erode expectations of a Wall Street rally at year end. Gloomy forecasts stem from a rise in the 10-year US Treasury yield from 1.1% in January 2021 to 4.84% earlier this month as well as the regulator’s relentless rate increases. The head of the Fed has repeatedly stated that another rate hike is needed to quell inflation. The central bank has signaled that it expects to keep its benchmark federal funds rate above 5% through 2024, which is contrary to previous investor expectations of a rate cut as early as the first quarter of next year.