The Weekly Brief
Thought of the week
Recent events have materially changed the market's expectations for the future path of interest rates. Prior to recent concerns about the financial sector, the market expected the fed funds rate to peak at 5.5%, but now sees it as already having peaked and anticipates the Federal Reserve (Fed) cutting rates this summer. Banks had already tightened lending standards and the recent turmoil could lead to a further contraction in credit conditions. This could amplify the impact of prior monetary policy tightening on the economy. We thus think that significant further rate rises are probably no longer required. Treasuries have already rallied on increased fears about the economic outlook but could still see further upside if rates were to be cut by more than is currently priced.
Markets now expect the Fed to start cutting rates
Market expectations for the federal funds rate, %