November’s better-than-expected U.S. job gains brought a touch more anxiety to financial markets on Friday, as investors reacted to the possibility that interest rates may need to go up even more next year than previously thought.
Traders boosted the likelihood that the fed-funds rate will get to 5% or higher by March to almost 40% at one point, up from roughly 31% on Thursday. JPMorgan Chase & Co.’s Michael Feroli saw an increased chance that the Fed’s median rate forecast for 2023 goes slightly above 5%. And at Stifel, Nicolaus & Co., analysts said that even 7% — an upper-bound estimate cited last month by St. Louis Fed President James Bullard — may be understating how much higher borrowing costs need to go.
Via phone on Friday, Piegza said, “I don’t think we are going to have to push to 7% or above with rates, but it’s on the table if inflation continues to surprise to the upside or international pressures ignite a new round of inflation. This notion that inflation has nowhere to go but down is not where we are quite yet.”
“In sum, the Fed is far from done — 75 is on the table for the December meeting, although given all the communication around slowing to 50 it will be hard for them to back away at this point,” Blitz wrote in a note, adding a higher terminal rate may be necessary.
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