What’s Next for the FED?

Okay, fellow market mavens, let’s face it, we are all dying to know what’s next in store for the FED as the next FOMC meeting nears, with some expecting a potential pause in rate hikes while others forecast a 25-basis point rate hike. 

According to a Reuters poll of economists, the U.S. Federal Reserve is expected to deliver its final 25-basis point rate hike in the next FOMC meeting, scheduled for May, while market consensus points toward a likely recession, which could pave the way for the FED to cut interest rates by the end of 2023. 

However, on the contrary, some analysts have expressed their view that “a rate cut looks less likely than higher rates” amidst inflation remaining well above the FED’s 2% target rate, a persistently tight and robust labour market and easing within the banking sector. This sentiment is reflected in the recent rise of the U.S. two-year Treasury yields, which typically reflect short-term interest rate expectations and have surged nearly 75 basis points in the past month due to positive economic data reducing the likelihood of rate cuts. Michael Gapen, the chief U.S. economist at Bank of America Securities (BofA Securities), emphasizes that there is still a long road ahead to bring inflation “back to the 2% target.” 

Sources: Bloomberg, World Economic Forum, Trading View 

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