It comes after a series of gloomy headlines for stock exchanges as February wound up: All three of the main U.S. equity benchmarks posted a loss in February as the Dow Jones sunk to its lowest level of the year to date.

Then there have been the warnings from the bear side that stocks are in the “death zone.”

Wall Street strategist Mike Wilson said last week that investors are running out of time to salvage their returns before risking a “catastrophic” end.

Optimism has been further shaken by an unexpected jump in inflation in January, up by 0.5% following the 0.1% increase in December.

In a note to clients on Tuesday, Sevens Report analyst Tom Essaye said: “The economy is not yet showing any serious signs of slowing despite tighter financial conditions, and given this data, the market is right in thinking the Fed will hike rates more than previously expected.”

5.25%–5.5% hikes incoming?

All of the above factors have led Bank of America economist Aditya Bhave to warn the Fed may need to hike rates to anywhere between 5.25% and 5.5% in order to “get inflation back” in line with the targeted 2% increase year on year.

Bhave adds the markets are pricing in a rates peak—a prediction of around 5.4% by September according to reports from Reuters—but that the reality will exceed that.

The memo seen by Fortune adds: “The Fed will have to keep raising rates until it finds the point of pain for consumer demand. At this stage, 25bp rate hikes in March and May look extremely likely. We recently changed our Fed forecast to include an additional 25bp hike in June. But the resilience of demand-driven inflation means the Fed might have to raise rates closer to 6% to get inflation back to target.”

‘No straight lines’

U.S. Treasury Secretary Janet Yellen seemed ready to continue her battle with inflation when queried about the unexpected balloon in inflation in January.

Speaking to Reuters in India at a G20 finance leaders meeting, Yellen said there was work yet to be done but dismissed the idea that a recession is inevitable.

She added that the fight to tackle inflation back to reasonable levels is “not a straight line,” while pushing back on a report from JPMorgan chief economist Michael Feroli, Brandeis International Business School professor Stephen Cecchetti, and Columbia Business School professor Frederic Mishkin, who highlighted that the past 16 instances of the central bank interfering to reduce inflation have all resulted in a shrinking of the economy.

Yellen countered: “I don’t accept that as a general statement that always has to be true. I think this report showed that it’s not going to be a straight line—disinflation is not a straight line.

“It’s one read, but core inflation still remains at a level that’s above what’s consistent with the Fed’s objective. So, there’s more work to be done.”

Bhaves disagrees: “A recession appears more likely than a soft landing.”

Bhave explains: “A slowdown in consumer demand, which our analysis suggests is necessary to bring inflation back to target, would likely lead to an outright recession. Consumer spending makes up 68% of GDP, and additional Fed hikes would also mean more pain for the interest-sensitive non-consumer sectors such as housing. 

“Our base case is that a recession will start in Q3 2023. Risks are skewed towards an extended period of consumer resilience, stickier inflation, and more Fed hikes. Either way, however, the lesson for investors is: No pain, no gain.”