Here’s why the Fed will keep raising interest rates

25 May 2023 - 15:51

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After recent events, many analysts have wondered about the possible decisions of the Federal Reserve regarding the trend of US interest rates.

Here's why the Fed will keep raising interest rates

There is a shadow on the financial landscape, which has focused attention on the complex issues related to raising the US debt ceiling. The concrete prospect of depletion of US government financial resources within the next week has raised the risk of a possible technical default.

These unstable situations are putting pressure on the debt market, generating concerns that are expected to continue to escalate until the critical deadline of June 1st.

What could be decreed by the next FOMC meeting regarding interest rates?

Fed interest rates: what scares analysts?

Tuesday’s auction, offering $35 billion worth of 21-day bonds yielding over 6%, struck fear among analysts. That yield is significantly above the current Federal Funds Rate (FFR) by more than a percentage point, which has challenged the notion held by several experts that the Federal Reserve is about to halt the cycle of rate hikes.

To further complicate the situation, recent economic data have painted a stable picture and is hardly indicative of a cooling of the economy. According to many analysts, bringing down inflation could prove more difficult than expected. This outlook raises concerns about the ability of economic authorities to manage effectively ongoing inflationary pressures.

Rates above 6%? Here is the opinion of the experts

JPMorgan CEO Jamie Dimon this week expressed concern that interest rates could exceed 6% before peaking. This level was almost taken for granted by markets before US regional banking institutions started to collapse in March.

Mark Nash, head of the Strategic Absolute Return Bond Fund at Jupiter, is also convinced that the central bank has not yet completed the cycle of raising interest rates, contrary to what now seems to be taken for granted by the market. Nash is looking to take advantage of this situation through short selling, betting that two-year bond yields could rise, leading to a negative performance for these financial instruments.

S&P500: what the stock market suggests

Judging by the performance of the equity market, the most plausible scenario would be a regular raising of the debt ceiling and a interruption of the Fed Funds hikes. However, on Wednesday, the price of shares on global stock exchanges seems to have questioned this last opinion again, starting a new apparent bearish trend.

Original article published on Italy 2023-05-24 18:37:00. Original title: La Fed continuerà ancora ad alzare i tassi di interesse. Ecco perché

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