The Federal Reserve has signaled since September that it will raise interest rates to a restrictive level and will hold them there until 2023. But the market hasn’t been listening as fed funds futures imply rate cuts in the second half of next year. Who is right, the market or the Fed? There is only one circumstance in which the market can be right – when inflation falls significantly and the US economy slides into recession in the next few months.
When the Fed last issued economic forecasts in September, officials predicted that the Fed’s interest rate would be 4.6% by the end of next year. Since then, a litany of Fed speakers, including Chair Jerome Powell, have warned that forecasts for this week will have shifted higher. Still, markets are pricing in less than the 4.6% forecast for September.
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