After the Fed pledged to continue hiking interest rates at the costs of triggering a recession, Bank of America strategists have warned that investors will have tough times ahead. Meanwhile, the energy crisis in Europe is escalating.

Fox Business/Megan Henney
Bank of America again warns of ‘recession shock’ as Fed doubles down on inflation fight

Bank of America is once again warning of a coming recession jolt after the Federal Reserve pledged to “forcefully” fight record-high inflation, even if means slowing the economy.

In a Friday analyst note, strategists led by Michael Hartnett predicted a “fast inflation shock, slow recession shock” as the economy continues to confront surging consumer prices, high household savings, billions in fiscal stimulus and the impact of the war in Ukraine.

Hartnett said he expects “new highs in yields” and “new lows in stocks,” after Fed Chairman Jerome Powell’s keynote speech in Jackson Hole, Wyoming, last week, where he hinted at an increasingly hawkish central bank that is determined to wrestle inflation closer to its 2% goal, regardless of the potential economic fallout.

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

Stocks plunged after Powell’s comments, which fueled a 1,000-point market rout. Hartnett, however, said he would “nibble” at the S&P 500 between 3,600 and 3,700 points — nearly 9% below current levels.

There is a growing consensus on Wall Street that the Federal Reserve will trigger a recession as it battles inflation with a series of aggressive interest rate hikes. Policymakers approved back-to-back 75-basis-point rate hikes in June and July and have indicated that another supersized rate hike is on the table in September, depending on forthcoming economic data.

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CNN Business/Anna Cooban
Europe’s Russian energy crisis is escalating and so are the costs

Europe’s energy crisis is deepening as Russia further limits exports of natural gas, forcing governments to spend billions to protect businesses and consumers from soaring bills as the region slides towards recession.

European benchmark natural gas prices spiked 28% on Monday morning to hit €274 ($272) per megawatt hour — the first day of trading after Russian energy giant Gazprom halted flows through the vital Nord Stream 1 pipeline indefinitely, claiming it had found an oil leak in a turbine.

Last year, the pipeline delivered about 35% of Europe’s total Russian gas imports. But since June, Gazprom had slashed flows along Nord Stream 1 to just 20% of its capacity, citing maintenance issues and a dispute over a missing turbine caught up in Western export sanctions.

Moscow’s decision not to reopen the pipeline on Saturday stoked concerns that the European Union could run short of gas this winter, despite a successful effort to fill storage tanks. Similar fears in the United Kingdom sent wholesale natural gas futures up by more than a third on Monday.

News of the pipeline’s indefinite closure on Friday caused the euro to sink below $0.99 on Monday — its lowest level in 20 years. The pound hit $1.14, its lowest since 1985, as traders worried about the toll a potentially drastic energy shortage could have on regional economic activity and government budgets.

Some countries are preparing to spend big to try to limit the pain.

On Sunday, the German government announced a €65 billion ($64 billion) relief package to help households and companies cope as inflation soars. Germany, Europe’s biggest economy, is particularly reliant on Russia’s gas exports to power its homes and heavy industry.

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CNBC/Karen Gilchrist
‘Why shouldn’t it be as bad as the 1970s?’: Historian Niall Ferguson has a warning for investors

Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.

Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterized by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was likely to be greater and more sustained.

“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.

“The monetary and fiscal policy mistakes of last year, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970′s doggedly high inflation.

“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.

As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that time, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could be far worse.

“This war is lasting much longer than the 1973 war, so the energy shock it is causing is actually going to be more sustained,” said Ferguson.

Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reducing reliance on Russian energy imports.

But Ferguson, who has authored 16 books, including his most recent “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could be avoided.

“Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s.”

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