Surrounded by the best of optimism of Wall Street is promising that the Federal Reserve will inflate inflation data within the next week. soft landing after all.

But such beliefs do not prevail among the rich. managersThe bettors are betting on an economic recession that is accompanied with high price pressures and a resolute lack of liquidity.

A closely monitored section of The Treasury yield curve sends out more recession signals. Stagflation is the outcome. consensus viewpoint A staggering 92% of Respondents to Bank of America Corp.’s latest fund-manager survey.

Citigroup Inc. paints a different scenario. of The “Powell Push” BlackRock Inc. does not see any prospect, but the Fed will have to raise even if growth falls. of A soft landing You can choose to live in Europe or the US. 

Even as bearish is the stance, recent data on employment as well as consumer and producer prices — combined with decent corporate earnings — suggest the US central bank may actually succeed in its high-wire mission to ramp up borrowing costs without crashing the business cycle. 

However, for the moment, the professional investor class will need to have more evidence of Before materially changing their defensive positions in the beaten-up global environment, a benign shift occurred in the economic trajectory of Stocks and bonds 

“Central banks will overtighten and push economies into moderate recession, but will stop hiking – before they have done enough to get inflation all the way down to target – as the damage from rate hikes becomes clearer,” said Wei Li, global chief investment strategist at BlackRock.

Li sees a US growth slowdown, earnings downgrades and elevated price pressures, justifying the firm’s underweights in developed-market equities and bonds, though it’s ready to put some cash back into corporate credit. Bank investors support her stance. of America is the country that sees stagflation as a possibility. The firm’s latest survey shows they’re historically underweight equities — with tech-share positioning the lowest since 2006 — and overweight cash. 

Contrast the pessimism with a bout of ebullience sparked by last week’s US inflation report It is possible that prices pressures are peaking, suggesting that they may be. That’s intensifying the debate about whether the Fed has room to moderate the pace of interest-rate hikes.

The parade dismissed the latter. of This week’s monetary officials. James Bullard, president of St. Louis Fed said policy makers are among the most hawkish. should increase Inflation can be controlled by lowering interest rates to no less than 5%-5.25%. This was after Mary Daly, San Francisco Fed President said that there had been a pause on the hike cycle “off the table,” Kansas City Fed President Esther George warned that the Fed may find it more difficult to control inflation without causing recession.

As rate increases cause bear markets in bonds and stocks, the Fed has become a new foe. No dovish policy pivot is likely in the near future. Citi is the first to promote this idea of The “Powell Push,” Jerome Powell-led central banking forced into growth-sapping rate increases on still-raging inflation ahead.

“We classify the environment as stagflationary,” According to Alex Saunders, Citi strategist. He recommends selling US credit and US equities to buy commodities and bonds under a Powell Push scenario.

Invesco is also careful, tilting exposure toward defensive equities through overweight Treasuries bets and US investment grade credit.

“A signal to become more ‘risk on’ would be signs the Fed is getting close to ‘pausing’ rate hikes,” Kristina Hooper, chief global market strategist of Invesco, stated the following:

Even Morgan Stanley’s Andrew Sheets — who holds a minority view that core inflation will fall to 2.9% by the end of 2023 — isn’t ready to go all risk-on yet given the prospect of A slowdown in the economy. He nevertheless cites the mid-1990s as an example of optimism. After a time of high inflation and skyrocketing interest rates, big gains were made by equities as well as Treasuries. 

“Bears say soft landings are rare. But they happen,” Sheets made his outlook for the year ahead. 

The weekly Impact Report newsletter, which will be published every week, will explore how ESG trends and news are shaping roles and responsibilities. of today’s executives—and how they can best navigate those challenges. Register here