Investors Cut Rate Cut Bets Before FOMC: Analysts Expect Fed To Stay Hawkish-Hold For Longer 2023

Recent months have seen a decline in speculators’ wagers on a rate decrease by the Federal Reserve in the second half of 2023, as experts anticipate policymakers will remain in a hawkish-hold stance for longer than expected due to sticky inflation and reduced recessionary risks.

Investors’ attention is concentrated on what the Federal Reserve does after the expected rate hike of 25 basis points at the upcoming meeting.
According to the most recent CME Group Fedwatch tool, investors are presently placing a 70% chance on the Fed maintaining its current rate range of 5%-5.25% in June.

The earliest meeting at which market participants anticipate a rate drop is the September 2023 meeting.

U.S. short-term Treasuries, such as those tracked by the iShares 1-3 Year Treasury Bond ETF SHY, have been hit hard by the event’s move to November, on top of the debt-ceiling crisis.

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According to David Mericle, U.S. economist at Goldman Sachs, the Federal Reserve will raise interest rates by 25 basis points for the final time in May and then keep them at their current, historically high levels for an extended period of time.

According to ING Groep chief economist James Knightley, the Federal Reserve will decrease interest rates by one full percentage point by the end of the year, with separate drops of fifty basis points in November and December.

According to Knightley, “we should expect a cut by around November” because “historically, the Fed doesn’t leave it long before cutting rates — over the past 50 years, the average period of time between the last rate hike cycle and the first rate cut has been only six months.”

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An economist pointed out that previous recessions brought on by difficulties in the financial markets tend to be more severe and prolonged than average recessions, as was warned in the March FOMC minutes.

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