Sadiq Adatia2

The odds of a U.S. economic downturn are rising now that the Federal Reserve has pushed interest rates high enough to bring the economy to a standstill.

The possibility of a soft landing has given way to rising risks of economic contraction. The damage from the Fed's rate-hiking cycle has already been done, but many investors and economists are now looking at the status quo with optimism.

"We're giving the most positive reading possible of the economic news right now, and it looks like everything is calm. It looks like we've weathered the regional banking crisis. But maybe it's the calm before the storm."

For decades, U.S. recessions have been preceded by a yield curve inversion, in which the yield on the 3-month Treasury bill exceeds the yield on the 10-year Treasury note, research shows. This inversion has been seen in all eight recessions since 1968. The current inversion is a warning to businesses and consumers that a downturn may be on the horizon.

Yet the U.S. economy has shown surprising resilience in the face of aggressive rate hikes by the Federal Reserve, defying occasional predictions of an imminent downturn. Markets are now predicting that the Fed will hold pat at its June 14 meeting, with the next rate hike likely to be delayed until July.