Fed Rate Hike Fears Grow as Markets Expect 6% Interest Rate by Year-End

In the U.S., markets now see the Federal Reserve increasing its benchmark interest rate to a peak of 5.25% by July, a quarter-point higher than expected two weeks ago. On Feb. 1, the Fed’s Federal Open Market Committee raised its benchmark interest rate from 4.5% to 4.75%, and anticipate that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.[0]

The markets expect the U.S. Federal Reserve to raise rates again on March 22. Following the US Federal Reserve’s (Fed’s) series of aggressive interest-rate hikes, inflationary pressures have shown signs of easing, which may pave the way for a “pivot to a pause” in monetary policy.[1]

Traders on Wall Street are now placing a bet that the United States Federal Reserve will hike interest rates beyond 6% this year, with several big wagers on the rate reaching as high as 6%.[2] This suggests that the conviction the Feds are not done with their rate hikes is growing.[3]

In terms of the Fed expectations, nothing is clear before next Tuesday’s CPI release.[4] However, the strong January employment data, released last Friday, and recent comments by Fed officials have challenged the consensus that the central bank is at the end of its tightening cycle.[5]

Meredith Margrave, Chief Growth Strategist and Editor of the POWR Growth and POWR Stocks Under $10 newsletters, urges investors to look at low-priced companies with the most upside potential in today’s volatile markets.[6] Investors should also keep an eye on inflation numbers and economic projections that the Fed will release with their interest rate decision to provide some clues on the Fed’s future rate hikes.

0. “Impact of Fed’s rate hikes on commercial real estate in Charlotte – Charlotte Business Journal” Charlotte Business Journal, 13 Feb. 2023, https://www.bizjournals.com/charlotte/news/2023/02/13/federal-reserve-rate-hikes-commercial-real-estate.html

1. “Outlook for US fixed income and equities Franklin Templeton” Beyond Bulls & Bears, 12 Feb. 2023, https://global.beyondbullsandbears.com/2023/02/13/outlook-for-us-fixed-income-and-equities-amid-tighter-financial-conditions/

2. “Traders Start to Bet Fed Will Go for Another Half-Point Hike” Yahoo Finance, 16 Feb. 2023, https://finance.yahoo.com/news/traders-start-bet-fed-another-171750344.html

3. “Wall Street Traders Betting Interest Rate Will Surpass 6% This Year” Coinspeaker, 9 Feb. 2023, https://www.coinspeaker.com/wall-street-traders-interest-rate/

4. “When To Expect The Fed To Raise Rates Again” Forbes, 13 Feb. 2023, https://www.forbes.com/sites/simonmoore/2023/02/13/when-to-expect-the-fed-to-raise-rates-again/

5. “Traders Are Starting to Put Big Money on the Fed Going to 6%” Bloomberg, 8 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-08/big-bet-on-hawkish-fed-seeks-135-million-gain-on-6-policy-rate

6. “Is This the End of the 2023 Market Rally?” Entrepreneur, 3 Feb. 2023, https://www.entrepreneur.com/finance/is-this-the-end-of-the-2023-market-rally/444342