Chart of the Day: A Fed-induced recession is here, fear markets

Risk is an old friend of Mr Market that sometimes results in unpleasant developments. Investors look out for the biggest risk that could smack them and build safety nets or take bets against it.

Risks from government policies, geopolitical turmoil, and monetary policy are always lurking around the corner. Over the past several months, a recession in the US has been the biggest worry for investors. While policymakers in the government and the Federal Reserve have assured that a hard landing is unlikely, there is little conviction in them.

As the chart shows, the probability of a recession has surged in recent months and turned into the predominant concern for markets. To be sure, the probability dipped slightly in July, perhaps on the assurances of the policymakers.

The Fed committee’s vote on the magnitude of a hike in policy rates will determine how far the worries over recession increase. The Fed’s sharp rate hikes are expected to result in the US economy contracting for at least two consecutive quarters, the definition of a technical recession.