Market Extra: First Wall Street bank to call a U.S. recession now sees chance that inflation fails to decelerate

by | Jun 29, 2022 | Stock Market

Deutsche Bank, the first major bank to predict a U.S. recession in the current inflationary era, now sees a chance that price gains won’t come off nearly as much as forecasters or Federal Reserve policy makers think they will.Deutsche Bank
macro strategist Tim Wessel said in a phone interview on Wednesday that “there’s a real chance that the market is underestimating the chance that inflation is accelerating or doesn’t decelerate fast enough.”His remarks come as a few market participants — like Rob Daly of Glenmede Investment Management in Philadelphia — also warn that inflation could prove to be resistant to Fed rate hikes in the second half of this year. Financial markets may be ill-positioned for such an outcome and, if that scenario pans out, investors and traders may be in for further rounds of tumult similar to those of the first half — with some seeing a growing risk the Federal Reserve could be perceived as having lost control of inflation.Read: What’s at stake for financial markets if investors get inflation wrong again in the second half“If you look at the past 18 months of expectations, they’ve all missed in one direction — to the downside — whether it’s professional forecasters, markets, or the Fed. I don’t see any reason why we shouldn’t think that everyone is underestimating the chances of inflation being higher,” Wessel said.“We now assume that we’ve missed some underlying fundamental change to inflation that we haven’t accounted for, and now see a real possibility that the market is underestimating the chances inflation is accelerating or doesn’t decelerate fast enough,” the New York-based strategist said. Supporting that notion are inflation-derivat …

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