Expectations for where the Fed’s terminal rate would peak have been rising at breakneck speed: Markets are pricing in a 5.5%-5.75% range for September, while the CME FedWatch tool shows a near 50% chance for the band to hit 6% that month.
The scale and pace of the move makes for uncomfortable reading for investors in developing stocks, bonds and currencies that have often buckled under rising global rates.
“The current repricing risk in the Fed’s terminal fed funds rate to perhaps 6% in a short period of time is in the context of (the) response to inflation running stubbornly well-above target in a weakening global GDP growth environment,” Satyam Panday, chief emerging markets economist at S&P Global Ratings told Reuters.
“This mix is generally a net negative for emerging markets.”
Expectations for further Fed hikes had been for 25 basis point increments, but Fed Chair Jerome Powell on Tuesday brought a faster pace back to the table….
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