In recent weeks, markets had banked on the idea that the U.S. Federal Reserve would either continue to increase its key interest rate modestly, hold rates where they are, or even cut them.
Just three weeks ago, markets were pricing in two Fed rate cuts this year. Last week, odds-players were betting on either one cut or none before 2024, The Wall Street Journal reported.
“The market is coming in line with the Fed,” whose officials have said firmly for weeks that they foresee no rate cuts and will lift rates further to wrestle inflation back to their 2-percent goal, rate strategist Priya Misra at TD Securities said to the WSJ.
Last week, new inflation data showed consumer prices increasing at virtually the same pace as in January after two months of declines. A report also showed consumer spending rose 3 percent in January, outpacing analysts’ 1.8-percent prediction.
In addition, the Labor Department claims that 517,000 new jobs, more than double most expectations, has raised the fear that the Fed will keep raising interest rates more sharply to rein back price pressures.
“Data has brought a dose of reality to markets,” Kristina Hooper, chief market strategist at Invesco US, told the WSJ.
Markets are also tightening their outlook on interest rates for next year. This month began with investors expecting a rate of 2.9 percent at the end of 2024; last week, the chips were now stacking on a rate of 3.7 percent.
TREND FORECAST: While the word on The Street last month that inflation would sharply decrease, since it is still way above the Fed’s made-up 2 percent range, the gamblers’ fear is that the Banksters will keep raising interest rates. As evidenced by the numbers, the bond market bettors are betting on more interest rate hikes. Therefore, the higher interest rates rise, the deeper the economy and equities will fall.