According to Charles Schwab, the U.S. Federal Reserve will be forced to slow the pace of rate hikes as volatility in the bond and currency markets grows, as it risks not only recession but financial disaster, Business Insider writes.

The U.S. central bank has already raised the rate three consecutive times this summer by 75 basis points in response to rising inflation, which hit a 41-year high in June, and now the Fed is expected to continue tightening until the discount rate reaches 4.5-4.75%.

And while the market expects another 75 basis point rate hike in November, the central bank may soon be forced to slow the pace of tightening due to strong volatility.

Analysts have pointed to strong volatility in the government bond market, currently measured at 153, according to Merrill Option’s volatility estimate, which is close to the March 2020 level when the Fed began injecting liquidity into the financial system to flood the market during the pandemic.

The rise in the U.S. dollar this year is also increasing volatility in markets outside the U.S. The Fed rate hike has a huge impact on the global economy because most trade and debt securities are denominated in dollars.

A stronger dollar makes imports less expensive, and a rate hike actually exports inflation to other countries.

In addition, a rapidly rising dollar increases the cost of borrowing, especially in emerging markets, so servicing loans or debt in a depreciating currency increases the risk of default.

The analysts added that.

“While we don’t expect the Fed to stop raising rates, we think a strong case can be made that market pressures could force it to slow its pace.”

– Business Insider materials used in preparation