The Fed drives its point home

Reflecting a certain “urgency”, Jerome Powell heaped pressure on the bond markets over the past week. He said he would raise the Fed Funds rate by 50bp as early as May, repeatedly if necessary given the persistence of high inflation that is likely to fuel the rise in wages. Some Fed members remember the pace of rate hikes in 1994/95: 300bp in 12 months. Against this backdrop, the market significantly revised its expectations for rate hikes by the Fed and most other central banks over the course of the year: 220bp for the Fed, 82bp for the ECB, 120bp for the Riksbank , 200bp for the RBA and the RBNZ! It remains to be seen whether economies can digest such a rapid pace of rate hikes. For the time being, the March PMI surveys show some resilience in the face of the Ukrainian conflict. The next macro indicators (employment, confidence, etc.) will continue to be closely monitored.