the Federal Reserve finds itself in an increasingly difficult position as it seeks to rein in runaway inflation without triggering a recession.

Growing uncertainty over whether the US central bank will be able to cool consumer demand without crushing economic growth prompted BlackRock, the world’s largest asset manager, to downgrade US stocks to “neutral” this week.

“The Fed’s hawkish pivot has increased the risk that markets will see rates remain in restrictive territory,” the note said. “The year-to-date selloff partly reflects that, but we don’t see any clear catalyst for a rebound. If they raise interest rates too much, they risk triggering a recession. If they don’t tighten enough, the risk becomes runaway inflation. It’s hard to see a perfect outcome.”

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) in Washington, DC, U.S., Wednesday, May 4, 2022. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)

The analysts’ note comes amid growing fears on Wall Street that the Fed could drag the economy into a recession as it seeks to rein in inflation, which soared 8.3% in April, nearly a high of 40 years. Bank of America, along with Fannie Mae and Deutsche Bank, are among Wall Street firms predicting a downturn over the next two years, along with former Fed Chairman Ben Bernanke.

Economic growth in the United States is already slowing. The Bureau of Labor Statistics reported earlier this month that gross domestic product unexpectedly shrank in the first quarter of the year, marking the worst performance since spring 2020, when the economy was still in the grip of the COVID-induced recession.


“The Fed is trying to thread the needle while wearing boxing gloves and a mouth guard, which reduces its degrees of freedom to act without causing damage to the real economy,” the economist said. RSM chief Joe Brusuelas who questioned whether the central bank would be able to pull off a soft landing.

Consumer spending inflation

A shopper walks through the aisles of the Dollar Tree store in Alhambra, California on Dec. 10, 2021. (Photo by FREDERIC J. BROWN/AFP via Getty Images/Getty Images)

Policymakers raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades and signaled that further rate hikes of a similar size are on the table in upcoming meetings. as they race to catch up with inflation.

Fed Chairman Jerome Powell acknowledged there might be some ‘pain associated’ with lower inflation and curbing demand, but pushed back on the idea of ​​a looming recession, pinpointing the labor market and heavy spending consumption as positive points of the economy. Still, he warned that a soft landing is not assured and pledged to “keep pushing” until inflation nears the 2% target.


“It will be a difficult task, and it has been made more difficult over the past two months due to world events,” Powell said last week during a Wall Street Journal live event, referring to the war. in Ukraine and COVID lockdowns in China.

But he added that “there are a number of plausible pathways to having a soft or soft landing. Our job is not to handicap the odds, it’s to try to achieve that.”