Fed’s Policy Path Back in Center of Attention

Investor fears over a slowing US economy seem to have been replaced with renewed fears over inflation and the Federal Reserve’s now-likely hawkish policy path. Despite serious progress on lower goods inflation and downside surprises in economic data for December, disinflation overall has recently slowed, with indicators like retail sales and today’s PMIs now showing the US economy’s resilience. The recent decline in US stocks points to a growing expectation the Fed may raise rates higher and cut later. Consequently, 10-year Treasury breakeven inflation (the market’s measure of inflation expectations) increased in February, breaking out to its highest level so far this year. Increasing inflation expectations are a red flag for the Federal Reserve. FOMC committee members were out in full force last week, publicly addressing the need to get inflation under control by raising rates higher than the bond market had forecasted. The market finally got the message and is now pricing the Fed Funds rate closer to that of the Fed’s own survey of economic projections. Below we see the bond market’s repricing of the expected Fed Funds rate for December 2023. The S&P 500 negatively reacted to this projection, pricing in a higher discount rate and making stocks less attractive to investors on the margin. Last month the market had convinced itself that December’s dreary economic growth numbers meant the Fed would risk a recession with its bold call for higher rates. Now it appears investors have recalibrated from fears over recession to renewed inflation worries. Strong economic numbers and a slowdown in disinflation have put the Fed’s policy path back in center of attention. The post Fed’s Policy Path Back in Center of Attention first appeared on Knowledge Leaders Capital. The post Fed’s Policy Path Back in Center of Attention appeared first on Knowledge Leaders Capital. [Image] Hi Gang! 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Increasing inflation expectations are a red flag for the Federal Reserve. FOMC committee members were out in full force last week, publicly addressing the need to get inflation under control by raising rates higher than the bond market had forecasted. The market finally got the message and is now pricing the Fed Funds rate closer to that of the Fed’s own survey of economic projections. Below we see the bond market’s repricing of the expected Fed Funds rate for December 2023. The S&P 500 negatively reacted to this projection, pricing in a higher discount rate and making stocks less attractive to investors on the margin. Last month the market had convinced itself that December’s dreary economic growth numbers meant the Fed would risk a recession with its bold call for higher rates. Now it appears investors have recalibrated from fears over recession to renewed inflation worries. Strong economic numbers and a slowdown in disinflation have put the Fed’s policy path back in center of attention. The post Fed’s Policy Path Back in Center of Attention first appeared on Knowledge Leaders Capital. The post Fed’s Policy Path Back in Center of Attention appeared first on Knowledge Leaders Capital. [Continue Reading...]( [Fed’s Policy Path Back in Center of Attention]( And, in case you missed it: - [The REAL Meaning of WD Gann’s Square Concept]( - [Great Start to the Short Week, Fresh Plays]( - [eureKARE co-founds EonBio to revolutionize drug discovery with pioneering cell-free technology on a chip]( - [Intraday Trading Risks]( - [Book Review: Being Relevant]( - FREE OR LOW COST INVESTING RESOURCES - [i]( [i]( [i]( [i]( Sponsored [This Has Won 99.1% Of Trades Over 3 Years]( This new video is causing quite a stir. It exposes a unique trade based on the 4 characters “310F”. These 4 characters hold the secret to the most powerful trade you’ve NEVER heard of. 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