During last week, the terminal rate for the U.S. Federal Reserve’s policy rates topped 5.50% and any expectations of a rate cut in the second half of this year were gone.
Also, last week strong economic data and hawkish Fed speakers pushed 50 basis points rate-hike odds for March and May higher. The current odds for a 50bps rate hike on March 22nd had increased to 30.6%.
The market expected two more hikes after March, and rate cuts would start in February 2024 with an expected Fed Funds Rate of 4% at year-end 2024.
In the meantime, the Bank of America expected job growth to moderate to 230K in February. These signs of a short-lived re-acceleration would make it easier for the Fed that heavily relied on economic data to stick to a 25bp hiking pace.
The Fed’s chairman Jerome Powell will appear before Congress this week as part of semiannual testimony on monetary policy.
The central bank raised its benchmark interest rate eight times last year, bringing the overnight borrowing rate to a target range of 4.5%-4.75%.
