Powell will likely seek to keep his options open for December, according to Morgan Stanley economists led by Ellen Zentner. While some data point to further weakness in the economy, inflation remains historically elevated. Haunted by the lessons of the past and faulted for being too late on tackling price pressures, Powell has been reluctant to pin hopes on forecasts for inflation to ease and therefore warrant taking the foot off the pedal.
As borrowing costs rise and the ensuing economic downturn eats into profits, distress and a pickup in default rates in credit markets are emerging as a top concern for investors, according to 54% of respondents. Stress in corporate debt supersedes worries about liquidity strains in Treasuries, which have approached 2020 crisis levels after a year of steep losses for bonds, raising concerns about market functioning.
Shelved leveraged-buyout financings, plunging issuance and surging yields have recently raised fears of dysfunction in corporate bonds. Asia has suddenly come back in focus as more cracks opened up. The outlook for defaults looks grim. Growing concerns about credit — long seen as a canary in the coalmine for recession — would only add to expectations for a Fed pivot.
Some respondents, when asked which aspect of the markets they are most worried about, chose to write in their own answers, which included concerns about the political turmoil, private credit and US stocks earnings.
--With assistance from Vildana Hajric, Tomoko Yamazaki and Nour Al Ali.
This article was provided by Bloomberg News.