Bob Michele, chief investment officer of JPMorgan Chase & Co Asset Management, and Michael Wilson, chief strategist at Morgan Stanley US equities, like almost everyone on Wall Street, are wary of the possible knock-on effects of the Fed's so-called quantitative tightening (QT).

This is obvious in the bond market. Michele said credit spreads, which are usually the gap between corporate bond yields and risk-free rates based on Treasuries, are still "too expensive".

"they don't seem to fully reflect the risk of recession," Michele said. By the end of the year, they are sure to return to their previous highs of more than 600 units. I also think that the market has not fully reflected the impact of quantitative tightening. There will be a full outbreak next month. "

The Fed plans to accelerate the maximum reduction of its balance sheet to $95 billion in September, reducing its holdings of up to $60 billion in Treasuries and $35 billion in mortgage securities. Since June, the monthly cap on quantitative tightening has totaled $47.5 billion. But last month, the Fed cut only about $22 billion from its portfolio. The need to tighten policy to curb soaring inflation has been a big problem for the Fed.

In a recent report, the Wilson stressed that while the Fed has stopped tightening policy in the past four cycles before the economy began to contract, triggering bullish signals in the stock market, current historical inflation levels mean that the Fed is likely to tighten policy when a recession comes.

U. S. stocks still fluctuated slightly on Wednesday, with the S & P 500 fluctuating between ups and downs. The S & P 500 failed to break through the closely watched 200-day moving average, a technical threshold that many see as a sign of a lasting upside.

"the 200-day moving average is valuable because it is a trend," Wilson said in the same interview. So we are on a downward trend, and before the market can return to the downtrend, I think it would be irresponsible to make some exaggerated forecasts for new highs, given the Fed's interest rate hikes and the coming QT. It's going to be much worse than what people are going through right now. "

But even as fears of a recession intensify, some Wall Street analysts have begun to consider the idea that the Fed will stop tightening.

In response, Wilson said: "compared with previous periods when markets were excited about the Fed's policy shift, the big change this time is that unless something very bad happens, they will not do it, which is certainly bad for the stock market. I just think that 15 years of excessive monetary policy has made ordinary investors a little complacent about this reality. "

However, Wilson suggested two possible scenarios for the Fed to turn, though he stressed that it was unlikely. Either the US sees an "inflation collapse"-deflation is occurring in many parts of the economy, or the employment data show that the US is in a "full-blown recession and companies are laying off workers".

"I don't know where the Fed's pain point is," Wilson said. But they don't want us to fall into a deep recession. But if the employment data is negative in the coming months-which is possible because some household economic data are already negative-they may suspend tightening policy. I don't think they will start to cut interest rates, but they can pause. The problem with this argument for equity investors is that it is bad for the company's profits. This is not good for the stock price. "

Michele said that at the much-anticipated annual central bank meeting, the Fed should make more clear what kind of tough stance it intends to take in the face of growing concerns about the recession.

"I hope Powell will at least give us some indicators of what will stop them from raising interest rates and what will really make them start to cut rates," Michele said. I think what the Fed should do is, especially Powell, who is leading the central bank to play a leading role in this and make this his moment. We are facing the highest inflation in 40 years. "