Investors may now have to brace for another tough period working out the amplitude of higher U.S. interest rate possibilities
Market pricing tends to swing back and forth like a pendulum around eventual outcomes - and investors may now have to brace for another tough period working out the amplitude of higher U.S. interest rate possibilities.
But most of those forecasters admit the balance of risks on their outlook for peak rates is now tilted even higher, and for traders who had penciled in a terminal rate of less than 2%little over a year ago, the full gamut of possibilities is now being entertained. Any thought of credit easing anytime soon from where it is today - so central to the early-year market optimism - is being taken off the table bit by bit.
Morgan Stanley’s Matthew Hornbach described the payrolls as a “mood changing” print that’s seen markets chase rates higher as if gripped by a sort of reverse FOMO - fear of missing out. The gist of Tadesse’s original analysis last year was that some 900bp of overall Fed tightening would be necessary to get inflation back to target, half from a massive $3.9 trillion of QT and the remainder from 450bp of rate hikes.
Bank of America’s latest monthly survey of fund managers around the world showed less than 5% of respondents expect peak rates above 5.5% - with the majority on consensus around 5.25%.
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