Resurgent ‘animal spirits’ in financial markets may undermine Fed’s inflation battle, Nomura says

A contrarian viewpoint is emerging that challenges investors’ recent optimism over the Federal Reserve’s ability to bring inflation down to 2% without a U.S. recession or a big rise in unemployment.

It’s the idea that Wednesday’s unexpectedly dovish pivot by policymakers, who penciled in three quarter-point rate cuts for 2024, may end up undermining their inflation battle and create a new set of problems. The reason is that it’s reawakening the market-psychology forces known as “animal spirits” — giving investors greater…