What if the Federal Reserve failed to cut rates?

At the start of 2024, financial market participants expected the Federal Reserve to cut interest rates by 250 basis points (from 5.5% to 3%) between March 2024 and the end of 2025. But inflation (as measured by the Federal Reserve, including rents imputed to homeowners) is resilient (headline inflation was 3.5% in March 2024, inflation excluding energy and food was 3.8%) and is no longer falling. Super core inflation (the rise in the price of services excluding rents and shelter prices) was 4.8% in March 2024 and rising rapidly. This suggests that the Federal Reserve will not cut rates. In reality, when we add 10-year expected inflation (as measured by inflation swaps) and potential growth, we arrive at 5.1%, which is not very far from the current Fed funds rate. If the Federal Reserve fails to cut rates: The dollar will appreciate sharply; Stock market indices will adjust downwards; But we do not believe that a recession will start in the United States, because it would simply be a return to normal with interest rates close to potential growth.