Wall Street posted its worst performance of the year on Tuesday, with the main benchmarks ending down as investors interpreted a rebound in U.S. business activity in February to mean interest rates will need to stay higher for longer to control inflation
With inflation still far from the Fed's 2% target, and the economy retaining much of its vigor, money market participants have been revising upwards where they see the Fed fund rates peaking - currently at 5.35% in July and staying near those levels throughout the year.
"Today, the realization is that the Fed is not kidding around about higher for longer, and in fact it might be a little bit higher for a little-to-a-lot bit longer," said Carol Schleif, chief investment officer at BMO Family Office. U.S. stocks had an upbeat start to the year after their worst annual showing in more than a decade in 2022, as investors hoped the central bank's rate-hike cycle was nearing its end. Such positivity makes equity markets susceptible to pull-backs though, when data undermines such expectations.Investors will look to the minutes detailing discussion at the Fed's last policy meeting, due out on Wednesday, for further clues on attitudes within the central bank on rates.
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