As traders hold their fire following a strong increase last week and ahead of some critical economic data, benchmark bond rates are scarcely moving.
Before that data point and retail sales on Wednesday, U.S. 2-year Treasury rates spiked to their highest levels since November as the market raised estimates for the peak Fed funds rate, according to strategists at Saxo Bank.
According to the CME FedWatch tool, markets are pricing in a 91% likelihood that the Fed will increase interest rates by another 25 basis points to a range of 4.75% to 5.0% following its meeting on February 1st.
According to 30-day Fed Funds futures, the central bank is anticipated to raise its Fed funds rate goal to a maximum of 5.2% by August 2023.
Only the New York Fed’s 1-year and 5-year inflation expectations survey is scheduled for publication at 11 a.m. Eastern time in terms of U.S. economic updates.
What the experts are saying
The Fed chair Jay Powell will give his semi-annual monetary policy testimony before the Senate Banking Committee on March 7; according to Jan Nevruzi, U.S. rates strategist at NatWest Markets, “we think is likely to be the final message the Fed will deliver to markets before their blackout period starts on March 11.”
As we said in our earlier comments, however, in our opinion a strong labor market by itself (without any spillover into inflation) isn’t enough to constantly raise the terminal rate; rather, a plateau in the decline of inflation would be needed for the Fed to tighten further.
We continue to believe that the Fed will maintain its current policy course of two further 25 bp rate rises over the course of the following two meetings, following which they will remain on hold for the rest of the year. Powell’s presentation on March 7 will be significant since it occurs before the release of the February NFP on March 10,” Nevruzi said.