That outlook is easing fears that the Fed will have to hike rates to levels that will severely crimp economic growth, squeeze profits, and hammer stock prices. Pulling this off depends critically on the behavior of inflation in the coming year and on the monetary-policy decisions aimed at containing it. The consensus of economists is that the Fed will successfully engineer a gentle slowdown and that the six rate hikes already in place, plus perhaps a couple more, will stabilize inflation without triggering a recession. The Fed has already tightened too much. The economy weakens more than is needed.
Inflation begins to slow again, but unemployment rises.
Unsure about the inflation outlook, the Fed turns the screw a few more times too many. The economy slows more than expected, investors bail out, and unemployment rises sharply. The Fed is far behind in the fight against inflation, allowing it to break out in 2001. The Fed belatedly turns aggressive, raising the risk of a severe slowdown or outright recession. Stocks and bonds suffer.