A hawkish tilt from Federal Reserve Chair Jerome Powell hasn't been enough to convince some investors that the central bank is unlikely to hold U.S. interest rates at elevated levels for much longer.
Powell's comments did little to sway investors in futures markets tied to the Fed’s policy rate, which on Wednesday reflected bets for only one additional rate increase this year, followed by cuts in January. The Fed’s projections, by contrast, imply 100 basis points of rate cuts from a peak of 5.6% by the end of 2024.
Skeptical investors have cited a range of factors for that rationale, from the lag with which monetary policy tends to take effect to the warning emanating from some parts of the U.S. yield curve, which has been inverted over the last year and became even more so in recent days - a signal that has preceded recessions in the past.
The 2/10 spread has inverted 28 times since 1900. In 22 of these instances, a recession followed, analysts at Commonwealth Financial Network said last year. The curve most recently inverted in March 2022.
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