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Last Hike? What To Expect From The July FOMC Meeting
The Fed will raise rates this week in what may or may not be remembered as the last hike of the most aggressive tightening cycle in a generation.
This discussion is hopelessly repetitive at this point. If I had a nickel for every time I've written the phrase "most aggressive tightening cycle in a generation" over the past year, I'd have... well, some nickels. I'd have a lot of nickels.
I won't stray into a philosophical tangent, but I felt compelled to acknowledge the monotony. It's no longer
I’d put the probability of the FF following the current market expectations at <5% aka highly unlikely.
Terminal rate reset will be a real possibility in H2. I am guessing (guess, as we all do) 4 consecutive 25 bps hikes of the FF rate.
The only way we peak at 5.25 and quickly come down are outcomes unfriendly to risk assets.
It’s probably an oversimplification, but it seems to me that the Fed’s impact can’t be felt until firms start being forced to leverage the higher rates. This has become a waiting game for the Fed. Because net interest is actually still dropping, the impacts of rate hikes have not even begun to be felt (for corporates). If the Fed continues raising rates while waiting for the 4T in Covid relief to be churned through they could end up over tightening and not realize until the time borrowing ticks up again. Knowing what we know now about the state of borrowing, the most prudent move seems to be to hold rates until you can realize the effects tightening will have.