(Bloomberg) -- Wall Street has been obsessed in recent weeks with trying to figure out whether the US economy will fall into a recession. 

Certain economic data points have weakened and inflation remains high. Yet, corporate earnings have stayed resilient. Fiona Cincotta, senior financial markets analyst at City Index, joins “What Goes Up” from London this week to add her voice to this debate.

“A ‘soft landing’ is optimistic, we’ll put it that way,” Cincotta notes, adding that she sees a more than 50% probability of a US recession in the near future. However, she says, the still-hot jobs market could ease the sting of an economic contraction.

Below are lightly edited and condensed highlights of the conversation. Click here to listen to the whole podcast, and subscribe on Apple Podcasts or wherever you listen.

Q: We heard from Powell and he came close to admitting the Fed might not be able to engineer a softish landing. What did you make of that?

A: It was almost the first official acknowledgment that there could be a recession in the US. The markets actually behaved quite interestingly in response to that because we saw equities actually pick up off the session lows. But this question on, ‘is there going to be a recession in the US?’ is one that’s really dominating the markets this week as investors tussle with that idea of more huge rate hikes from the Fed -- 75 basis points potentially in July, another 50 basis points in September. So yeah, that focus of ‘is there going to be a recession in the US?’... the answer is still unclear. The chances of a recession happening in the US are much more likely now than they have been for a very long time. It’s not as clear-cut in the US as it is in Europe. I think in Europe, it’s almost going to be impossible for us to avoid a recession over this side. But in the US, I think a soft landing is optimistic, we’ll put it that way. So that puts my expectations of a recession probably moving over 50% chance at the moment. 

But there are a couple of things that the US economy really does have in its favor. That’s the leeway in the jobs market. You’ve got such a strong jobs market right now, which obviously does have its downfall in the sense that it’s keeping wages elevated, but that does mean that there’s a lot of leeway. It gives the Fed real wiggle room to be able to get those big hikes in early. That’s what they’re going to be looking at doing. So it could be that the jobs market is actually the saving grace for the US economy, even though right now that might not necessarily seem to be the case given that it’s keeping wages so high.

Q: How much is already priced into the stock market? Is the worst priced in?

A: The focus is going to be on the jobs side of things. For now, we had that big selloff when there was that realization that the Fed is going to hike rates by 75 base points, and they did. That’s when we saw some big moves down and we saw the S&P move into the bear market. There is more downside to come, and that will be coming when we start to see the cooling off in the jobs market. That’s going to start to get people nervous. That’s going to get investors a little bit more nervous. 

For now, we’ve seen that inflation is high. We know that. We know that we’ve seen that 1.5% contraction already. So as far as those macroeconomic figures are concerned, it’s priced in where we are. It’s when we start to see that easing in the jobs market. Initial claims are creeping up towards that five-month high. We’re not seeing big moves there, but there might just be some sense that there could be a little bit of easing coming in. So that, for me, is going to be one of the key data points to be really watching closely.

Q: So many people are saying earnings estimates need to come down. What do you think?

A: First of all, how is it almost earning season again? Where did that come from? But we get this point often heading into earning season -- these questions about are we over-expecting from the companies? And I think that there is a good chance that we will get some disappointment coming into these earning seasons. It’s been a tough environment for them. And, more importantly, the next quarter is going to be extremely tough. That’s where we’re going to see a lot of the guidance perhaps coming in a little bit lower than what we might have been expecting. That’s going to be something to watch out for. As far as going beyond that, I think there will be some better news as we head towards the end of the year, but that’s looking quite a long way out.

We’ve gotta get through the forward guidance from the earnings season coming up, which is going to be on the disappointing side. As far as price hikes are concerned, we know that there have been price hikes. They have been passed on. We also know that they’re not always successfully being passed on. So I think that’s something. And the other thing to bear in mind is we’ve had that cash egg from the pandemic, which has been helping households as they have moved into this higher inflationary environment. And that’s going to have been disappearing now. So that’s going to be something that’s going to be becoming more obvious as we go into this earnings season.

To hear more, click here or find the episode wherever you get your podcasts. 

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