Inflation: Strategist details ‘key ingredient’ to bringing down prices

An aggressive Fed coupled with a recession coming sooner, rather than later, may be the ingredients which brings down inflation, says one veteran strategist.

"I think a lot of the negative news is priced in [the markets], and what may be starting to come into the mix is a realization that [a] recession is sooner, not later, and we've been in that camp. I think one has probably already started," said Liz Ann Sonders, chief investment strategist at Charles Schwab.

"The combination of a more aggressive Fed and a recession sooner rather than later, probably is the key ingredient in the recipe to bringing inflation down," said Sonders.

Her comments came on the same day the Bureau of Labor Statistics released a hot inflation print of 9.1%, the highest level since 1981.

Market participants expect the Federal Reserve to raise interest rates by at least 75 basis points at its next meeting in order to combat high prices and squash demand.

Economists warn of recession risks as the Fed tightens monetary policy into a slowing economy. A tight labor market with 3.6% unemployment has thus far emboldened the central bank to continue on a path to normalize rates.

But Sonders warns the jobless rate is a lagging economic indicator.

"It's the economy that goes into a recession that then causes the unemployment rate to go up. It's not the case that the unemployment rate starts to move up significantly and then you get a recession,"

"If you look at unemployment claims, which is a leading indicator, they're up 36% from the April low," said Sonders. "Then you add to it things like layoff announcements … and then the anecdotes of hiring freezes, potential layoff announcements. I think it all just stacks up to — not a message of we're in implosion mode here — but it probably gets worse from here not better."

Ines is a stock market reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre

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