One of the overarching market themes this year - aside from the hype around artificial intelligence - has been investors avidly building up bets on the Federal Reserve finally announcing an end to its cycle of rate hikes, only to have that optimism dashed. There's no doubt that the U.S. central bank is nearing the end of its mission to wrestle down inflation. Headline inflation in July rose 3.2% on an annual basis - a far cry from last June's 9.1% - and nearing the Fed's 2% target.
FILE PHOTO: Federal Reserve Chair Jerome Powell at the Jackson Hole economic symposiumOne of the overarching market themes this year - aside from the hype around artificial intelligence - has been investors avidly building up bets on the Federal Reserve finally announcing an end to its cycle of rate hikes, only to have that optimism dashed.
The economy isn't generating jobs as quickly as it was a year ago, but it's still set to add another 170,000 in August, which will mean more than 25 million workers will have been added to non-farm payrolls since the depths of the COVID pandemic in April 2020. The dollar, which economist Mohammed El-Erian described earlier this year as "the cleanest dirty shirt" among world currencies, is set for a 2% gain in August, marking its strongest monthly performance since May, thanks in large part to anticipation of at least one more Fed rate hike before 2023 draws to a close.
Money markets show traders believe the Fed has one more hike in the pipeline this year, which would bring its target rate to a range of 5.50%-5.75%, from 5.25%-5.50% right now.
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