The Fed signaled its intent to increase interest rates as early as March after its meeting last week. Hence, money markets and central Wall Street banks are now anticipating as many as five rate hikes this year.
But some investors anticipate policymakers to prepare the markets for more rapid rate increases this year to check inflationary pressures, particularly after last week’s robust data.
The Fed could supersize an interest rate expansion to half a percentage point if inflation remains stubbornly high, Atlanta Fed President Raphael Bostic told the Financial Times in an interview.
A more rapid pace of rate hikes is also dampening future growth expectations; a scenario playing out in the bond markets where spreads between two and ten-year U.S. Treasury yields dropped below 59 bps for the first time since early November in a phenomenon known as bear-flattening. [U.S./]
U.S. data on Friday revealed the core personal consumption expenditures (PCE) price index, the Fed’s favored inflation gauge, rose 4.9% year-on-year, the most significant growth in 39 years.
Hedge fund positioning in currency markets also recalled a broadly consolidative trend. Net dollar long positions were edging higher but holding under recent highs.
The Australian dollar was among the early gainers versus the dollar. The Aussie was higher than 0.7% at $0.7048 before a central bank policy conference on Tuesday.
The Bank of England also has its meeting on Thursday, with a Reuters survey of economists expecting a second rate hike in less than two months after U.K. inflation leaped to its highest in almost 30 years.
The European Central Bank also has a policy conference on Thursday. There shouldn’t be any policy changes. However, analysts are starting to alert that approaching rate hikes from the Fed will shrink the ECB’s window for action.
Bitcoin held a further $37,000 behind a quiet weekend for the digital asset in cryptocurrencies.
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