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Hiking paths

Despite the good news on the inflation front this week, the probability of another #ratehike in July is almost certainty. Futures discount a hike with 92% probability which gives the #federalreserve the confidence the market is aligned with their view and there will be no surprises. You’ll probably find more interesting, though, the fact that the probability of official rates being 5.5% in December, is 26%. The market seems to be stubbornly convinced the Fed will not hike further, and the path forward that comes out of fed funds futures still indicates the fed will unwind some of the hikes. There is a clear diverging view between the fed and the market, and that may have implications on asset valuations. As we get into 2Q earnings season, we’ll see how resilient companies are to this environment. The fed will indeed struggle to hike if the market corrects abruptly.

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Chart source: Bianco research.

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