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Outlook 2023: What's Next for Interest Rates?

Outlook 2023: What's Next for Interest Rates?

January 05, 2023
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     What does the bond market know that the Fed isn’t telling us?
Fed officials recently have said that short-term rates will need to climb to
over 5 percent to bring inflation under control. But in the table below, you
can see that the bond traders say short-term rates will top out at 4.5
percent in 2023 and then head lower.

     The bond market is more dovish than the Fed. And perhaps with good
reason. The November Consumer Price Index report came in below
expectations, and there are more and more signs that inflation has started
to trend lower, which may suggest the Fed’s work is coming to an end.

     So why is the Fed talking so tough? As many of you may recall, Fed
Chair Jerome Powell said inflation was “transitory” throughout much of
2021. The Fed Chair doesn’t want to mischaracterize inflation again.

     So why is the Fed talking so tough? As many of you may recall, Fed
Chair Jerome Powell said inflation was “transitory” throughout much of
2021. The Fed Chair doesn’t want to mischaracterize inflation again.