This week, as the world's largest economy, the USA will face the most severe challenge of the year, whether the Federal Reserve can achieve the so-called soft landing, as investors anxiously await a series of key inflation and growth data releases after a historic surge in market volatility.

Last week's market volatility included the VIX index, which is closely watched by the market, soaring to record highs, followed by the largest drop in history over the next four days. This made investors particularly cautious in the last week of August, fearing that the US economy could be heading towards a recession.

The labor market data is mixed, but still shows steady growth. Worries were raised by weak consumer spending, weakened activity, and declining confidence index.

This will test the Federal Reserve's ability to achieve a soft landing, namely stabilizing the inflation rate at around 2% without causing the economy to fall into a recession.

Brian Moynihan, CEO of Bank of America, spoke about this risk in an interview, saying that with the slowdown in the economy and consumer spending tightening, the Federal Reserve should cut interest rates as soon as possible.

He said: "The economy is slowing down, so we have to be careful, because we've already succeeded in repressing inflation and inflation has come down. Although it hasn't fallen to the level people hoped for, we have to be careful not to try to do too much to perfection that will lead us into a recession."

The executive said Bank of America's analysts did not predict a recession this year.

Moynihan added: "They tell people that interest rates may not rise, but if they don't start lowering interest rates relatively quickly, they may undermine consumer confidence in the US."

The July consumer price index report released on Wednesday will largely determine the Fed's next move. Although the market has bet on a rate cut in September, there is still controversy over whether the central bank will choose a conservative 25 basis point cut or a larger 50 basis point cut.

Chris Larkin, trading and investment management director of E-Trade, owned by Morgan Stanley, said: "This week's inflation data is a key moment for the stock market, which has just experienced its most volatile week of the year. In just a few weeks, the discussion has shifted from whether the economy has slowed enough to concerns about economic stagnation."

He added: "Investors want to see data in a 'sweet spot', cold enough to ensure that the possibility of a rate cut in September is not questioned, but warm enough to alleviate the recession concerns that have plagued the market recently."

Analysts expect CPI to rise by 0.2% month-on-month and by 3.2% year-on-year in July, unchanged from the previous month, but still well above the Fed's 2% target.

Editor/Lambor