It's a now-familiar dance: Federal Reserve officials signal to the world that interest rates are not dropping anytime soon. Financial markets respond with bets to the contrary. Forecasts published on Wednesday by the U.S. central bank showed that a majority of its policymakers see the Fed's benchmark overnight interest rate ending this year at 5.6%, which implies one more interest rate hike in the next three months.
- It's a now-familiar dance: Federal Reserve officials signal to the world that interest rates are not dropping anytime soon. Financial markets respond with bets to the contrary.
Meanwhile, interest rate futures contracts continue to price in only about a 50% chance of further tightening in 2023, and see a 4.65% policy rate by the end of next year. Financial markets may be more optimistic about easing price pressures than the more guarded Fed policymakers. "Given our view for slowing GDP growth in Q4, a shrinking imbalance between labor supply and demand, and still moderate core inflation, we continue to expect the Committee to keep the fed funds rate unchanged at current levels," TD Securities analysts wrote, referring to the central bank's policy-setting committee.
They also plan to start cutting interest cuts well before inflation actually hits their goal, so as to prevent policy from becoming too restrictive given falling inflation.
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