When Will The Fed Raise Rates?

AI-generated source summary

The analysis focuses on the potential for interest rates to continue their upward trajectory, specifically referencing the 2-year and 10-year US Treasury yields. Historical data shows that when the Fed has paused or cut rates, the market has seen significant drawdowns, with 10-20% corrections occurring in stocks during such periods. The current narrative suggests that while the market has priced in a pause in rate hikes, the sustainability of this stance depends on inflation and employment data. The presenter highlights that a strong labor market and persistent inflation could prompt the Fed to consider further rate hikes, potentially pushing the 2-year yield towards 5.25% and the 10-year yield towards 5.094%. Conversely, if inflation were to cool and the labor market weaken, rate cuts might become a consideration later in the year, which would likely support asset prices. The current market sentiment, as indicated by the FedWatch tool, shows a significant probability for no change in rates in the immediate future, but the underlying economic data suggests a bias towards potential further hikes or at least a prolonged period of higher rates.

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