Financial markets are on precarious footing since last Friday’s surprise reading on accelerating U.S. inflation for May — with Treasurys, stocks, credit and currencies all exhibiting friction or tension ahead of the Federal Reserve’s interest-rate decision on Wednesday.According to strategist Ben Emons and trader Tom di Galoma, the process of transmitting monetary policy through U.S. financial markets is hamstrung right now and there’s a risk that higher-inflation expectations spiral and push the world’s largest economy into “an instant recession.” Even those who doesn’t see that as a base-case scenario, like strategist Marc Chandler, said the “market might be tightening faster than what the Federal Reserve wants and faster than what the underlying economy can cope with.”Financial conditions began to take a particularly sharp turn last Thursday, a day before Friday’s U.S. consumer-price index report showed an unexpected 8.6% year-over-year gain in the headline U.S. inflation rate. They have continued to tighten since. Now with Fed policy makers seen as likely to deliver a jumbo-size 75-basis-point hike in the fed funds rate on Wednesday, Emons and di Galoma said all it would take to trigger a further asset selloff is ambiguity from Fed Chairman Jerome Powell on what the central bank will do in July, which would allow the financial market to extrapolate that further big interest rate hikes are on the way. “If Powell …
