Markets misunderstand the Fed on rates
2023.01.05 08:03
Markets misunderstand the Fed on rates
Budrigannews.com – According to Morgan Stanley (NYSE:), the markets aren’t ready for the extent to which U.S. central bankers are willing to go in order to control the hottest inflation in a generation. Jim Caron of Investment Management.
In an interview with Bloomberg TV on Wednesday, the chief fixed-income strategist for the asset manager stated that traders continue to underprice the future path of policy tightening even though Federal Reserve officials anticipate raising interest rates above 5% next year.
Caron stated, “I don’t believe the hiking cycles are sufficiently priced in.” People’s expectation of lower interest rates is already priced in, and I believe we should pay attention to what the central bankers have to say about their concerns regarding inflation.
The hawkish message from policymakers that tighter monetary policy and higher interest rates are necessary until inflation is under control continues to be reinforced. A few policymakers emphasized last week that the central bank is committed to returning inflation to their target of 2% and that there must be clear evidence of price pressures decreasing.
At its last policy meeting of the year, the Federal Reserve raised interest rates by half a percentage point last week, bringing their benchmark to a range of 4.25 percent to 4.5 percent. Rates will end the following year at 5.1%, up from 4.6% in the previous round of projections, according to the so-called dot plot.
However, Fed-dated overnight index swaps anticipate rate increases of just over 50 basis points by the May meeting, followed by rate reductions of half a percentage point by the end of 2023.
Caron anticipates that the Federal Reserve will maintain rates at 5.25 percent for some time to keep inflation under control, unless something extraordinary occurs.
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