This research was published on March 15, 2023

Less than a week ago, the cyclical playbook for executives looked comparatively straightforward. To prevent inflation from becoming entrenched, the Fed would continue to hike rates and leave them higher for longer.

Somewhat surprisingly, the resilient U.S. economy absorbed that headwind and stood a good chance of squeaking by in 2023 without a recession. The first stage of a mythical soft landing was playing out, though not without challenges for firms.

However, the collapse of Silicon Valley Bank (SVB) and its repercussions has shredded that playbook–at least in the eyes of markets, as seen in the dramatic shift in the interest rate outlook. Last week, markets believed the Fed would hike the policy rate to about 5.75% and not cut it before early 2024. Now, the stress in the banking sector has shifted rate markets to bet on cuts as early as June 2023 and peaking below 5%. The recessionary outlook is back in market pricing.