Last week FOMC meeting minutes were released and it was not what the investors were hoping for. The committee remains with the stand that policy rates need to be raised or kept at higher levels for longer. They also anticipate a mild recession starting later this year. And the main indicator they follow, PCE price inflation is expected to be close to 2% only by 2025.
There were various points of discussion as well but the main outcome of it is that committee members were most divided this time since the rate hikes have started.
This is not good for the rate market as the swaps now estimate a 92% probability of a July rate hike. But more importantly, it now estimates the first rate cut only in May 2024. Such a trend poses an upside risk to rates in the next twelve months and it has already resulted in 10yr at bond yield to rise above 4.05%.
The second half of the year looks more uncertain for economic and financial indicators as a global recession with possible higher rates and inflation might bring in the feared stagflation. And if history is witnessed it might lead to a depression in the real economy that would be reversed for the next few years.