Debt markets get the memo in the way of likely Fed rate hikes

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It seems that Wall Street could be getting the note. Debt markets have become less concerned about the trajectory of future Federal Reserve interest rate hikes, even as the US economic outlook.This chart compares Wall Street’s forecasts in March and April for the trajectory of the fed funds rate for about the next 3 1/2 years, now pointing to a higher, more gradual slope for benchmark rates.

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Forecast of the trajectory of BNP Paribas rate hikes

The chart shows that traders still expect short-term (3-month) rates to first rise above the Fed’s current range of zero to 0.25% around September 2023, but then for the path to 1.5% to be come back slower. The Fed has signaled that it does not expect to raise rates above nearly zero until 2024, and that there will be no rush to cut its massive $ 120 billion a month bond buying program. Read: Tone of next week’s US economic data on track to be positive, but Fed will remain deaf. Lately, betting markets have adopted the Fed’s more gradual approach to tightening monetary policy, Daniel Ahn, BNP Paribas’ chief US economist, wrote in a Tuesday note. “Recent market behavior appears to have internalized this consistent message from the Fed, with the market discounting a rate hike from the last three weeks, but still seeing around 3-4 hikes by the end of 2023.” Ahn said he emphasized that Fed officials at the previous meeting of the Federal Open Market Committee in March “already released significantly higher growth and inflation forecasts, which the latest data is justifying,” which probably means “the first clue “about reducing your monthly asset. purchases will not arrive until August, and implementation is not likely until early 2022. US consumer confidence rose again in April to a 14-month high as the rise in vaccines, the drop in Coronavirus cases and a surge in hiring eased pandemic-related anxieties, while home prices rose 12% in February, the biggest jump since 2006. Stocks fell modestly on Tuesday, ahead of the update on the Fed policy and one day after the S&P 500 SPX index, + 0.04% and the Nasdaq COMP composite index, -0.25% closed at all times records. The 10-year US Treasury BX: TMUBMUSD10Y yield was about 5 basis points higher, at 1.62%. Read: Why the Fed’s Focus on Those Hardest hit by the Pandemic Matters for Markets