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It’s a day of significance for those following the Fed’s decisions. Following the anticipated inflation figures on Tuesday, the market has come to the consensus that the Fed will likely refrain from raising interest rates during the meeting. Market strategist Charlie Bilello points out that the Fed has consistently aligned its actions with market expectations in every meeting since 2009.
Wall Street: Deutsche Bank
Wall Street banks are revising their annual targets as we approach the summer solstice. Deutsche Bank, which was the first Wall Street bank to predict a recession in April 2022, is now updating its outlook. Chief economist David Folkerts-Landau states that they have consistently maintained their view that the United States is heading towards a policy-driven boom-bust cycle, induced by expansive fiscal and monetary policies. The bank believes that the aggressive rate hikes required to control inflation have now materialized. Folkerts-Landau notes that avoiding a severe economic downturn would be historically unprecedented.
This recessionary perspective is echoed by others, prompting Deutsche Bank to consider adopting a contrarian and more optimistic stance on the economy. However, the bank adheres to its forecast of a recession in the fourth quarter, as monetary policy operates with a delay and U.S. consumers are still gradually spending down excess savings accumulated during the pandemic, which is expected to occur closer to the end of the year.
Notably, Deutsche Bank maintains its prediction that the S&P 500 will reach 4,500, aligning with the optimistic outlook of Goldman Sachs, which believes the U.S. will avoid a recession. Deutsche Bank acknowledges that investor positioning has returned to normal levels, and if earnings remain strong, accompanied by robust buybacks, equities should continue to see gradual gains.
Despite the recessionary environment, Deutsche Bank anticipates that bond yields will not decline significantly due to the enduring stagflationary conditions. They project the 10-year U.S. Treasury yield to reach 3.35% by the end of the year.