By Stephen Culp

NEW YORK (Reuters) – BlackRock Investment Institute cut its ratings of developed market (DM) equities to “neutral” from “overweight” on Monday, citing the U.S. Federal Reserve’s potentially overzealous efforts to curb inflation and signs of economic slowdown in China.

Regarding the Fed’s ramped-up rhetoric “vowing to bring inflation down at any cost,” lead analyst Jean Bolvin writes that the central bank’s conundrum “implies the sharpest policy trade-off in decades: between choking off growth via sharply higher rates or living with supply-driven inflation.”

On Wednesday, the release of the minutes from the Federal Open Market Committee’s (FOMC) most recent monetary policy meeting could shed light on where the Fed stands on this trade-off.

On Friday, the Commerce Department is expected to release its personal consumption expenditures (PCE) report for April, which will provide evidence as to whether price growth has peaked and the effect long-term heightened inflation has had on consumer spending.

Beyond the prospect of overly aggressive Fed tightening, Bolvin expects China’s economic woes to be contagious, saying, “The hit to Chinese growth is starting to rival its 2020 shock and already surpasses the one from the global financial crisis.”

So far this year, S&P 500 and the Nasdaq have fallen more than 17% and 27%, respectively. As of Friday’s close, the S&P 500 closed within 2 percentage points of confirming it entered a bear market after notching its last record closing high on Jan 3.

(Reporting by Stephen Culp; Editing by Mark Porter and Will Dunham)