STORY: A day after U.S. stocks confirmed a bear market, and a day before the Federal Reserve unveils its latest interest rate hike, investors are increasingly predicting that a larger-than-expected three-quarter-percentage point rate increase will be announced either in July or possibly even by the conclusion of its meeting on Wednesday.
Fed policymakers had signaled they were leaning toward a second half-percentage-point interest rate hike in a row on Wednesday, part of their effort to tame record-high inflation.
But that outlook had conditions, which Fed Chair Jerome Powell laid out in May:
POWELL: "Assuming that economic and financial conditions evolve in, in ways that are consistent with our expectations, there's a broad sense on the committee that additional 50-basis increases should on... 50-basis-point increase should be on the table for the next couple of meetings."
Since then, inflation expectations have moved in the wrong direction for the Fed, with Labor Department data for May showing consumer price inflation accelerated to 8.6%.
Now, economists at Barclays are calling for a three-quarter-point move either this week or in July.
The U.S. central bank faces a difficult task of taming high inflation by cooling the economy without sending it into a tailspin.
Worries that a hawkish Fed will hurt U.S. growth as it fights inflation has led some to believe that a recession is waiting in the wings.
But some market watchers say the fed has no choice but to act aggressively:
PORTFOLIO MANAGER ZACHARY HILL: "It's been pretty clear that the Fed has been behind the curve in terms of inflation. You know, they were talking about "transitory" last year [FLASH] Actually, a more aggressive action from the Fed this week would be broadly received positively by investors. That's because someone is finally doing something about the thing that we've been talking about for the last six months ad nauseam, which is inflation."
If history is any guide, there is more pain ahead for Wall Street and Main Street, according to investment research firm CFRA, as nine of the last 12 bear markets have been accompanied by recessions.