Why the Fed won't be able to avoid a recession or bring inflation down to its 2% target, according to BlackRock

The Federal Reserve may not be able to avoid a recession and may not be able to bring inflation back down to 2%.

Markets expect the Fed to keep hiking rates after Chairman Powell's speech.

Low production capacity is the biggest problem and higher rates won't solve it. If the Fed didn't address supply, it would have to raise rates 2% to get inflation down.

Analysts said in a note on Tuesday that the Fed will be surprised by the damage done by its tightening. The Fed will stop raising rates when they see the pain. We think it will be too late to avoid a contraction in economic activity, but it won't be enough to bring PCE inflation down to 2%. We don't expect inflation to go up much.

The Federal Reserve has been trying to bring down high inflation this year, but so far has only seen a small fall in prices.

The US is already in a technical recession, as GDP has declined for two consecutive quarters, and supply shortages from the swine flu are still present in key markets.

The US economy has stopped. "We expect a recession early next year."

The severity of inflation and the rate of hiking needed to fully quell high prices have led other investment banks to predict a recession.

Despite mild losses this summer, the market has been cautious about the risks of a recession due to the tough balancing act of lowering inflation while maintaining economic growth, according to analysts from JP Morgan.