In a surprisingly hawkish move the Federal Reserve (Fed) adjusted its expectations for future policy rates at its June 2021 meeting. The median Fed participants’ expectation is now for two hikes by the end of 2023 and with seven out of eighteen in favour of raising rates in 2022, the risks are skewed towards even faster tightening than the median currently suggests. Markets reacted to the announcement with a small decline in equities, while Treasury yields jumped. All eyes now turn to Jackson Hole and the September meeting to see whether this new found hawkishness also leads to an acceleration of the tapering timeline, though we still currently expect tapering to start early in 2022.

Federal Reserve median expectations are for liftoff in 2023

% Fed funds rate