If the economy does avoid the US recession, the consequences could be dangerous for the stock market, according to TS Lombard analysts, writes Business Insider.

That’s because the Fed is likely to keep interest rates high in a “no landing” scenario, which would put pressure on stocks. Fed officials already raised interest rates last year to control inflation, which caused the S&P 500 to fall 20%.

Can the U.S. avoid a recession?

According to the research firm, investors could face big losses if the economy runs without a hard or soft landing, meaning that it will avoid a slowdown and recession and instead continue to remain strong.

This is because the Fed is likely to keep interest rates high, while other central banks traditionally cut rates by at least 200 basis points when faced with a recession.

While most analysts have predicted that the interest rate will reach 5% this year, it could rise to 6.5% if the U.S. avoids a recession.

This is far from an innocuous scenario, as the market conditions that prevailed for most of 2022 would return. The market would try to keep up with ever-increasing rate expectations, which would likely lead to a prolonged downgrade of stocks.

The market has lost some of its gains since the beginning of the year as investors look for further rate hikes, with the rate itself also staying high for longer.

Earlier, we reported that Wall Street rose as Treasury yields fell.