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Investing.com - US 5-Year and 10-Year bond yields have escalated to levels unseen since 2007, reflecting rising concerns about inflation.
The market recently adjusted its expectations for the peak in interest rates from November to December. This change suggests that traders may be acknowledging signs of a more pronounced pause from the central bank, as noted by Christopher Jacobson at Susquehanna International Group.
The financial world is keenly awaiting the Federal Reserve officials' updated quarterly rate projections, also known as the dot plot, set to be released at the end of the policy meeting on Wednesday (Thursday AEST). The focus will be on whether these forecasts maintain the median view for one more quarter-point hike this year and whether the projections for 2024 reduce the 100 basis points of rate reductions that officials predicted in June.
Fawad Razaqzada at City Index and FOREX.com believes that a revision in the 2024 median plot indicating fewer rate cuts than initially forecasted would deter bearish bets on the dollar.
Lauren Goodwin at New York Life Investments commented that the disinflationary process has somewhat stabilized since the Fed's June forecasts, but inflation risks are on the rise. Consequently, she anticipates that officials will retain the incremental quarter-point hike in their projections, with a potential final increase in November.
According to Goodwin, the criteria for rate cuts remain stringent. Unless a significant economic slowdown is observed, inflation is expected to decrease slowly and in a non-linear manner. She suggested that a recession would be necessary for the Fed to cut rates next summer, as currently priced by the bond market.
