Today, in the early morning, the Federal Reserve announced the eighth interest rate hike since the beginning of this rate-hiking cycle, increasing the rate by 25 basis points. Although the magnitude has decreased, the end point has not yet been reached, and further rate hikes are expected in the future.

The world is concerned about a recession, but Wall Street investment bank JPMorgan Chase has indicated that the biggest risk for 2023 is not having a recession. Moreover, it now appears that the Federal Reserve's goal is precisely to see a recession.

01, Interest Rate Hike

As predicted by the market beforehand, the Federal Reserve has raised interest rates, and the increase is consistent with predictions, by 25 basis points. So far, the cumulative increase in this round of the rate-hiking cycle has reached 450 basis points, but the current rate is still slightly lower than the highest rate before the subprime crisis.

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However, due to the Federal Reserve's stance, which shows that the rate hikes have not stopped, it is very likely that the rate will exceed the highest rate before the subprime crisis after a few more meetings.

Since the interest rate hike was not unexpected, the three major U.S. stock indices rose in sync in the early morning. However, the Dow Jones Industrial Average still performed the worst, only rising by 0.02%, with a cumulative increase of 2.85% so far this year, which is also the lowest among the three major indices.

But since the Dow's decline last year was also the lowest, it is now less than 8% away from its previous peak after surpassing 34,000 points.At the close of trading in the early morning, the index with the highest increase among the three major indices was the Nasdaq, which rose by 2%.

After the S&P 500 index increased by 42 points, it has surpassed 4,100 points, marking the highest closing record since the rebound began from the low point in October last year, and is gradually approaching the high levels of last August.

It appears that the market is very optimistic about the future actions of the Federal Reserve.

02, No recession is the big risk

However, Wall Street investment bank JPMorgan Chase has stated that the current economic conditions are good, which has paradoxically become the biggest risk of this year.

Strategists at JPMorgan Chase believe that if a recession does not occur, the Federal Reserve will continue to tighten policy relentlessly, and this hawkish stance could lead to greater market volatility.

The potential good news is that prices are gradually coming down, and the pace of economic slowdown is accelerating, bringing the market closer to a recession.

JPMorgan Chase also believes that various signs indicate that the Federal Reserve wants a recession because truly controlling inflation necessarily includes a rise in unemployment levels, a drop in housing prices, and a series of other specific manifestations of a recession. For the Federal Reserve, a mild recession would help inflation to fall back into the target range.

Entering 2023, the S&P 500 and Nasdaq indices have already accumulated increases of 7.3% and 12.9% respectively. This rebound is undoubtedly not due to a recovery in corporate profits, but rather from market expectations that the Federal Reserve will shift its monetary policy.

The biggest trouble now is that if the Federal Reserve's monetary policy shift does not materialize, and investors' expectations are dashed, it could trigger a massive sell-off in the market.The continuously rising stock market now may imply that there is a greater potential for a future decline.