Can the FED Funds Rate Head for A 6% Terminal Top?
The FED's terminal rate top is priced in at 5.07%, but rates could go higher if prices keep increasing
Until the middle of last year, central bankers were brushing inflation under the table as transitionary, until they were forced to accept that high inflation was here to stay. Inflation surpassed 5% last summer and kept increasing, exceeding 10% this summer, which forced central banks to start the steepest tightening policy in history.
The WSJ’s Nick Timiraos taped into what many traders are worried about, especially ahead of today’s US consumer inflation figures. A great number of analysts “are seriously considering whether the central bank’s target rate will rise as high as 6% before FED officials take their foot off the brake.”
At the moment expectations are for a terminal top of 5.07% but FED members have made it clear that they’re willing to hike beyond that and will sacrifice growth to tame prices. Richmond Fed President Barkin said that he’s willing to risk an economic downturn to control inflation.
“Five percent has become the new 4%, and that could mean that 6% becomes the new 5%,” said Brett Wander, chief investment officer for fixed income at Schwab Asset Management. The FED can also keep the rates at 5% for a full year after reaching the terminal top which could also be damaging to bonds and if inflation still stays high through a recession, then the market could price in a 5% rate for years.
At the moment, the 5% is the top the FED is aiming for and today’s inflation report will be important on that decision. So, we will take it one CPI report at a time and judge where the FED is going, taking into account their comments too.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
Related Articles
Sidebar rates
Related Posts
Save
Join 350 000+ traders receiving Free Trading Signals
