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3% official rates

The market is discounting almost 100 bps #ratehike for the #FOMC meeting and a total of 210 bps hikes for the rest of 2022. That means fed funds above 3% for the first time since 2008. It’s not clear wether this aggressive hikes will decrease inflation to 2%, which is considered “price stability” by the #fed, but it most certainly push the economy into recession, and that’s why the market is also discounting a rate cut in the 1Q2023. Some important questions remain: (1) what does 3% official rates mean for investment grade, HY bonds and equities valuations? (2) will the #usd continue strengthening hurting US exports and therefore #gdp? (3) will this be a #stagflation scenario? (4) will the #federalreserve be able to reduce its balance sheet in this scenario?

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Source: Bloomberg

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