Economic Anxiety: Wall Street Worries as Recession Bets Plummet

Wall Street is growing concerned that the US economy may be running too hot, as recession bets have plunged to their lowest levels since April 2022. The decline in recession expectations means that markets are now more vulnerable to signs of rampant inflation, which could lead to interest rate hikes. Positive economic data, such as solid jobless claims figures and strong service-sector activity, have reinforced the case for the Federal Reserve to keep rates elevated, causing a drop in equities. Even government bond investors are less pessimistic, as stronger-than-expected data eases concerns about a recession. However, the market's sensitivity to economic news means that good news may pose a bigger risk, potentially leading to inflation, higher policy rates, and negative impacts on corporate earnings and consumer debt.