Investor’s attention will now turn to the next FOMC meeting September 20-21, where the Federal Reserve will decide the size of the next hike to the Fed funds rate. Officials are expected to produce a third consecutive 75 basis point hike to the benchmark interest rate, however some investors feel there is a chance that fears inflation is becoming more entrenched could produce a 100 basis point hike.

The decision will be released Wednesday at 2 PM EST.

Fed Chair Jerome Powell will give a closely watched speech following the release of the decision, as well as economic projections from central bank members, and a dot-plot showing each official’s projections for the Fed’s key short-term interest rate.

In a note Friday,  analysts at Bank of America led by Michael Gapen wrote, “In the updated projections, we look for revisions in the direction of less growth, higher unemployment, and a higher terminal rate – yet, we expect the inflation path to remain largely unchanged. To our eyes, this would suggest risks of a hard landing are rising, though we expect the median member to forecast a soft landing.”

It is expected the predictions that are revealed will have a strong influence on where the market goes from here. All three major indexes are coming off their worst week since June after Friday’s close. Over the previous week the S&P 500 lost 4.7%, the Dow was down 4.1%, and the Nasdaq shed 5.5%.

Inflation numbers came in hotter than expected and have prompted waves of pessimism regarding the Fed’s policy position, and its potential to significantly stunt growth going forward as it tries to tackle an increasingly persistent inflation.

The August CPI registered an 8.3% year over year increase, and a 0.1% increase over the previous month when the Bureau of Labor Statistics released the numbers on Tuesday. The expectations had been for an 8.1% year over year increase and a 0.1% fall month to month, according to Bloomberg consensus estimates.

Immediately following the release, major firms including Bank of America, Goldman Sachs, and Nomura all raised their projections of the Fed’s interest rate hike, and increased the projected likelihood of the economy making a hard landing – a sharp economic downturn following the previous period of rapid growth.

Goldman Sachs noted if the Federal Reserve triggered a recession through rate-hiking, the stock market could plunge 26%.

Goldman said in a note, “If only a severe recession — and a sharper Fed response to deliver it — will tame inflation, then the downside to both equities and government bonds could still be substantial, even after the damage that we have already seen.”

Also coming up this week, housing data will be released, with measures of building permits, housing starts, and existing home sales. With mortgage rates surging past 6%, investors will be closely watching these numbers.

Meanwhile earnings reports will be coming from FedEx (FDX), Lennar (LEN), General Mills (GIS), Costco (COST), and Darden Restaurants (DRI). On Friday FedEx shares dropped 21% following a warning from the company on earnings which it blamed on global macroeconomic headwinds which may point to a global recession in the offing.

Many analysts are warning earnings will probably be impacted across most major companies going into the end of the year.

Data from FactSet Research indicate that earnings growth expectations for the S&P 500 are at 3.7% for Q3, a sharp downturn from the expectations of 9.8% at the end of June. Every S&P 500 sector except energy has seen earnings expectations cut over the last 2-3 months, with seven sectors expected to show outright year-over-year declines.

Bank of America’s Michael Hartnett said in a note on Friday, that earnings per share recession shock could trigger new market lows, pointing to the effect of FedEx’s warning, followed by an immediate collapse in share price. Writ large, and concentrated during earnings season, that could trigger sudden massive outflows from equities, battering all the major indexes and producing a sea change in investor sentiment.

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