traders work on the floor of the new york stock exchange nyse in new york city march 27 2023 investors are too confident the federal reserve will cut interest rates this year and could pay the price later according to asset management giant blackrock and others on wall street market pricing as of tuesday morning pointed to the fed holding its benchmark interest rate at current levels and then starting to reduce as early as july according to cme group calculations those cuts could total as much as a full percentage point by the end of the year the firms fedwatch gauge shows that comes despite multiple public statements from central bank officials who indicated in their dot plot unofficial forecast last week that they see probably another quarter percentage point hike and then no cuts at least through the end of 2023 the expectation for cuts would be consistent with a recession and an accompanying fall in inflation assumptions that wall street strategists think are dubious we dont see rate cuts this year – thats the old playbook when central banks would rush to rescue the economy as recession hit blackrock said in its weekly client note now theyre causing the recession to fight sticky inflation and that makes rate cuts unlikely in our view the investing implications are ominous blackrock which manages about 10 trillion in client money says it is underweight stocks in developed markets such as the us instead it recommends clients focus on investments like fixed income that is indexed to inflation as well as very shortduration government bonds resilience in stocks the firm said is coming largely because markets are still holding onto hope that the fed starts to ease after a year of tightening that sent the benchmark federal funds rate up 475 percentage points we think the fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect blackrock strategists wrote