The Street's eyes are laser-focused on the task ahead for the Federal Reserve.

The Fed has committed to taming elevated inflation by tightening monetary at a rapid pace, stoking fears that the central bank will not be able to achieve a "soft landing" for the U.S. economy. In interviews with S&P Global Market Intelligence, investors, analysts and economists say that a recession is a real possibility in 2023 and that small businesses and households with lower incomes, in particular, could feel some pain if that occurred. But the members of the investment community also suggested that large corporates, consumers and banks have strong enough balance sheets to weather a storm — possibly even a "hurricane" — should it emerge.

Those interviews were highlighted in a recent series of articles examining the prospects for a U.S. recession and the Fed's efforts to achieve a "soft landing" for the economy, and the key takeaways are featured in the latest Street Talk podcast.

More recently, the May reading for the consumer price index, released June 10, only emboldened the market's expectation for the Fed to aggressively tighten monetary policy. The probability of a 75-basis-point rate hike at the Fed's June 15 meeting jumped in the futures market to 96% early on Tuesday, June 14, from just 3.6% on Thursday, June 9, the day before the CPI release. The bond market reacted in the days after the CPI release as well, with the yield on the 10-year Treasury jumping to 3.44% around midday on June 14 from 3.05% on June 9.

Another steep rate hike coming at next week's Fed meeting

Continuing its push to rein in inflation, the Federal Reserve is likely to announce a 50-basis-point rate hike at its June 14-15 meeting. Nevertheless, many economists expect elevated inflation to persist through the end of 2022.

US Fed aims for soft landing as economists see recession odds growing

The Federal Reserve is trying to cool the economy without freezing it, a task economists believe is increasingly difficult as the likelihood of another recession grows.

As inflation soars, consumers brace for hard landing

The persistence of inflation will be decisive in determining whether household finances are healthy enough to soften the landing of the U.S. economy. A $2.5 trillion stockpile of excess savings, a tight labor market and rising wages continue to bolster consumers' spending power. But inflation is eating into consumer confidence, and the Federal Reserve's rate hikes will make credit card debt and mortgage repayments more expensive.

As cheap-money era ends, smaller companies face capital crunch

Rising interest rates are making it more expensive for companies and consumers to borrow money, signaling that the period of "cheap money" that followed the Great Recession of 2008-2009 is finally coming to an end. The biggest companies and wealthiest consumers are expected to weather the more expensive environment without significant distress. Many of the largest companies are flush with capital raised when interest rates were low and have pushed out the timeline for when their debts come due. Recessions hit households with lower incomes harder than they do more affluent households.

Risk management, low unemployment insulate banks in case of recession

Even as the Federal Reserve raises interest rates to combat rising inflation, U.S. banks say they are protected from a deep recession that would spark notable loan losses, thanks to strong institutional risk management and a tight labor market. While investors, executives and analysts focused on the banking space acknowledge that the Fed faces a difficult task in engineering an economic soft landing, they believe that even if a recession occurs, it will not pose a grave threat to U.S. banks.

"Street Talk" is a podcast hosted by S&P Global Market Intelligence.

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