But executives at this week's Milken Institute Global Conference warn that may not be the case, and that markets are ill-prepared for rates to stay higher for longer.The Federal Reserve is expected to raise its benchmark interest rate by 25 basis points on Wednesday as it continues its fight against inflation. What the central bank does after that is still up in the air.
The Fed itself wouldn't characterize its outlook like that. Its officials have said they expect to keep rates at their terminal level — most likely 5-5.25%, which would mean a pause after this week's meeting — through 2023. Here's the Fed's March meeting dot-plot, which shows where members of the Federal Open Market Committee see rates at the end of 2023. Most members see rates remaining at 5-5.25% or climbing even higher.Investors see things differently, however.
While markets are pricing in a pause in June at 5-5.25%, here's where they believe rates will most likely be in December: 4.25-4.5%. Investors are pricing in just a 1% chance that rates will be at 5-5.25% by the end of the year, where the Fed says they will be.
Below, we've compiled what five of them said on Monday about their expectations for Fed policy and financial markets."It's hard for me to imagine the Fed lowering rates to the degree that is priced in without a much more serious economic downturn. And either one of those scenarios is not very good for markets.""Without a doubt, rates are going to be higher for longer than what's priced into the market right now.