In response to the cost pressures faced by the economy, the US Federal Reserve raised interest rates by 75 basis points for the second straight month, with Chair Jerome Powell signalling that a similar hike was on the cards. The US rate hike was perceived as less hawkish than previously expected as the Fed will now look at macro data to take a decision in September.

Powell, during the press conference, said that the labour market was ‘extremely tight’ and inflation was‘ too high’. The Fed chair denied that the US had entered recession, but Keith Wade, Chief Economist & Strategist says in a recent report that “the risks are still skewed towards the Fed having to generate a recession to bring inflation under control.”

“In our view, evidence of a slower economy is likely to continue to accumulate via a weaker housing market and consumer. This should feed through to a slower labour market as firms respond to weaker sales,” writes Wade.

Analysts at Charles Schwab said that the underlying message is that US Fed is willing to risk triggering a recession to restore price stability, and the policy tightening may already be enough to cause a recession. “We suggest investors consider adding some duration—exposure to interest rate risk—to their portfolios rather than waiting for the Fed to keep hiking rates. Bond ladders can be an effective way to invest today,” writes Charles Schwab in an insight.

Tai Hui, Chief Market Strategist for APAC at JP Morgan Asset Management, says that the recent hike indicates less dramatic increases in the next three FOMC meetings. “Given that inflation remains elevated, and a large component of which is driven by domestic demand and the housing market, it makes sense for the Fed to return to neutral as quickly as possible. This is also consistent with the slightly less hawkish as Fed funds rate approaching the neutral stance,” writes Tai Hui.

A similar opinion was shared by Ray Sharma-Ong, Investment Director, Multi-Asset Investment Solutions, at abrdn, who said that the US rate hike may not be as aggressive going forward. Sharma-Ong said that even if the Fed hikes rates by 75 bps, the investment management firm does not see it shocking the market. “With the Fed charting a path to cool inflation and moderate growth, we expect long-end yields to gradually come down,” writes Sharma-Ong.