Wall Street investors anticipate that stagflation will pose the biggest risk to the global economy in 2023

That’s according to a recent Bank of America pulse survey, which found that 92% of fund managers expect a period of high inflation and low economic growth next year, while 0% are forecasting a Goldilocks scenario, in which the economy avoids a recession and inflation slows. 

“Investor sentiment remained uber-bearish,” the survey said. “Investors kept cash levels high at 6.2%, just below last month’s 21-year peak of 6.3%. Additionally, net 77% are calling for a global recession.”The responses indicate the stock market could be in for another rocky year after central bank tightening, stubbornly high inflation and the Russian war in Ukraine already sparked a multitrillion-dollar carnage.a, according to the IMF’s official website.

And although equities rallied recently on hopes the Federal Reserve could soon pause or slow its rate hikes, the survey indicates that investors do not expect the U.S. central bank to pivot until inflation falls below 4%.There is a growing expectation on Wall Street that the Fed will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.

Officials this month approved a fourth consecutive 75-basis-point rate hike, lifting the federal funds rate to a range of 3.75% to 4% – near restrictive levels – and showed no signs of pausing rate increases. In a troubling development, the Fed’s rate hikes have thus far failed to tame inflation: The government reported this month that the consumer price index soared 7.7% in October from the previous year, hovering near a 40-year high.That indicates the Fed will have to continue charting its aggressive course, raising the odds that it will crush consumer demand and cause unemployment to rise.

“Let me say this,” Fed Chairman Jerome Powell told reporters earlier this month. “It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It’s very premature, in my view, to talk about pausing our rate hikes. We have a way to go.”

Hiking interest rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. This can cause people to lose their jobs, and businesses to go bankrupt.

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