(Bloomberg) -- The Federal Reserve will keep raising interest rates despite traders betting otherwise as fears of a banking crisis convulse markets, according to BlackRock Inc.

The world’s biggest money manager favors inflation-linked bonds — securities that offer protection from rising prices — on the view markets are wrong in expecting imminent US rate cuts as the economy lurches toward a recession. This time is different as the Fed and its peers have made clear that troubles buffeting the banking sector won’t halt their battle against inflation, BlackRock Investment Institute strategists including Wei Li wrote in a client note.

“We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit,” the strategists said. “We see a new, more nuanced phase of curbing inflation ahead: less fighting but still no rate cuts.”

The firm is retaining an underweight position in developed-market equities, it added.

BlackRock’s view clashes with those of TD Securities and DoubleLine Capital LP, who say the Fed is mistaken about the need to keep raising interest rates as the risk of recession grows. The collapse of several US banks and Credit Suisse Group AG this month are forcing a global rethink on the outlook for monetary policy, while triggering the biggest swings in Treasury yields in more than a decade. 

Yields on US two-year notes — among the most sensitive securities to changes in central-bank policy — were on Tuesday set to extend the previous day’s rebound from near the lowest levels this year as jitters around banking-sector contagion ease. While investors have returned to pricing in the prospect of a quarter-point Fed hike in May, they’re also betting markets aren’t completely out of the woods yet, and there may be around 65 basis points of easing by year-end.

Fed Swaps Once Again Show Hike More Likely Than Not for May

Two-year Treasury yields rose 5 basis points to 4.05% on Tuesday. Euro area government bonds also sold off, sending the yield on the two-year German note 12 basis points higher to 2.64%.

Read More: BlackRock Strategists Say Stocks’ Bets on Rate Cuts Premature

Recent economic data give credence to BlackRock’s view that the Fed may be “underestimating how stubborn inflation is proving due to a tight labor market.” US core consumer prices rose in February, while research from the New York Fed found inflation seemed poised to stick around for longer than previously expected.

“We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect,” the BlackRock strategists said. 

--With assistance from Alice Gledhill.

(Updates prices throughout.)

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