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Opinion
Lisa Abramowicz

Fed Expectations Don't Add Up In the Debt Market

Many investors seem confident the U.S. can avoid a recession despite the expected amount of monetary tightening and the drag on the economy from surging food and energy prices.

Jerome Powell, chair of the Federal Reserve, faces a confusing debt market.

Jerome Powell, chair of the Federal Reserve, faces a confusing debt market.

Photographer: Tom Williams/CQ Roll Call/Bloomberg via Getty Images

Something doesn't quite add up in the debt markets. Traders are betting that the Federal Reserve will increase interest rates seven times within the next 12 months, starting this week. This makes sense given the rate of inflation, which, according to the latest consumer price index reading of 7.9%, is the highest since 1982. But here's the part that doesn’t make sense: many investors seem confident the U.S. can avoid a recession despite the expected amount of monetary tightening and the drag on the economy from surging food and energy prices.

The news last week was again dominated by the images wrought by Russia's invasion of Ukraine. The conflict has spurred a humanitarian crisis in Eastern Europe. Many are concerned about food shortages in Africa and other nations dependent on the region's production of wheat and other grains. The U.S., U.K. and other nations have stopped buying Russian oil products, sending the price of crude and energy prices higher.