The history books suggest the latter.
The Fed’s peers have been unwilling or unable to match the full extent of U.S. tightening cycles in the past, and many are once again signaling they will stop short of the Fed this time around too.
Fed Chair Jerome Powell’s congressional testimony on Tuesday was remarkable, not so much for what he said – most people expected him to talk tough – but in the reaction it unleashed.
The peak Fed rate implied by U.S. rates futures jumped to 5.70%, the two-year Treasury yield leapt above 5% for the first time since 2007, and the 2s/10s yield curve inverted by more than 100 basis points for the first time since 1981.
Rates traders now reckon a 50 basis point rate hike later this month is three times more likely than a quarter point increase, economists at Goldman Sachs raised their terminal rate forecast to 5.50-5.75%, and analysts at BlackRock said there’s a “reasonable chance” the Fed goes to 6%.
It…
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