Speculators playing the market in interest rate futures are betting that the U.S. Federal Reserve will continue raising interest rates aggressively through this year, then begin to cut them in the second half of 2023.
The underlying assumption is that the Fed will drive the economy into a recession, which it then will seek to cure by cutting interest rates to revive GDP, The Wall Street Journal said.
Currently, the yield curve for treasury securities is inverted, meaning that short-term yields are higher than longer-term returns.
By keeping longer-term rates lower, the Fed’s actions will delay any recession and keep the central bank’s rate-hiking policy aggressive in the short term, the WSJ cited speculators as saying.
Belief that the Fed will begin cutting rates by mid-2023 means that Treasury securities’ yields will move lower the further away in time the securities will mature.
Ten-year notes closed Friday at 2.781 percent, their lowest since 27 May.
Players see the Fed’s key rate peaking at 3.3 to 3.5 percent late this year, then easing back next June and dropping to about 2.5 percent by mid-2024.
TREND FORECAST: “It’s the economy, stupid.” That was the behind-the-scenes campaign line when Bill Clinton was running for President in 1992… and it holds true today.
We forecast that the Fed will lower interest rates in attempts to boost economic growth prior to the 2024 Presidential elections, since whoever is running the White House, runs the Fed. Indeed, when equities were crashing in December 2018, it was Donald Trump that pushed the Fed to lower interest rates to artificially prop up equities and the economy.
Indeed, as Gregory Mannarino illustrates in his article, Magic Money, “Central Banks are sending a BIG message to the stock market as of late which reads like this: “WE GOT YOUR BACK! AND WE COULD NOT POSSIBLY CARE LESS ABOUT SURGING INFLATION.”