Wall Street traders are looking at a June rate hike and a further cut in Fed bond purchases after President Joe Biden on Monday appointed Jerome Powell to run the central bank for another four years.
From the current near-zero level, which started in March 2020, traders expect a rise of at least 25 basis points in June 2022. On top of that, they also expect a 62 percent chance of at least three hikes over the course of the year. More than 30% believe there will be a fourth rate hike by the end of 2022.
“The economy is on the rise in inflation and the Fed has already taken steps to cut its emergency stimulus measures, but they will need to move faster to combat inflation threats to keep them from taking hold,” Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, told Fox.
The Treasury yield curve fell sharply after Powell’s second term was announced. The two-year bond yield rose five basis points over the day. The expected price increase next year was added to the 2022 and 2023 contracts, resulting in significant price swings in the Eurodollar futures market.
Greg McBride, chief financial analyst at Bankrate.com, told CNBC: “With the Federal Reserve at a tipping point where it begins to cut stimulus, continuity as Fed chairman is key,” referring to Powell’s continued as central bank governor.
Low Fed rates since the start of the pandemic have led to simplified and cheaper loans, which helped the economy to get back on its feet. But continued low rates, despite the recovery, have contributed in part to strong price increases and inflation, which has not been seen for 30 years.
The rate hike in June 2022 could begin after the Fed completes its bond-buying program cut and the labor market fully recovers, Powell suggested. “We will be patient,” he said. “If an answer is needed, we will not hesitate.”
However, many experts have lost confidence as the general rise in prices for raw materials, from meat to gasoline, negatively affects the economy.
Meanwhile, the unemployment rate fell to a new pandemic-era low of 4.8 percent last month, adding another 531,000 jobs. As the labor market bounces back, it remains to be seen how long the Fed can delay rate hikes.
“It’s hard to imagine how the Fed can stay on the sidelines any longer,” Matthew Sherwood, a global economist with the Economist Intelligence Unit, told Fox.
Calls for change come from the central bank as Vice Chairman Richard Clarida asked to discuss the balance cut at the next Fed meeting, and Fed Governor Christopher Waller called for a faster end to bond purchases.
While gold prices rose slightly on Wednesday, anticipation of an imminent rate hike kept them below the $ 1,800 mark.
“We are living in an era that investors haven’t seen before because you have significant uncertainty about whether the Fed will act on time” to stave off inflation, said Gary Cloud, portfolio manager at Hennessy Equity and Income. Foundation, Reuters.