After Jay Powell speech this week, the fed funds curve continues to re shape. The market expects the fed to stop hiking sooner, around the end of 1Q23, but now has incorporated the view that they will cut rates more aggressively through 2023 and 2024. This view seems to accept, at face value, both from the side of the fed and the market, that inflation is under control and on its way to 2%, which is the final goal. But we are still at 7.7%. At the same time, the fed continues to shrink its balance sheet as planed, at a rate of $90Bn per month. Markets have been rallying on the news, putting more weight on the positive news.
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