ACTV - Are Rate Increases Unthinkable?
2024-02-21 00:04:00 ET
Summary
- Clearly, the markets believe the next move will be toward lower rates, but no one should be surprised by the fact that a rate increase is possible.
- Two years ago, almost no one correctly forecast the recent path of interest rates.
- Recent policy errors have been in the direction of an excessively expansionary policy.
Bloomberg says that some pundits are beginning to contemplate the possibility that the Fed’s next move might be up, not down:
Are Rate Increases Unthinkable?
Summers, a Harvard University professor and paid contributor to Bloomberg Television, suggested a perhaps 15% chance that the next Fed move is an increase. Mark Nash, who manages absolute return macro funds at Jupiter Asset Management, puts the odds at 20%.
Even some who do expect rate cuts have advocated taking out insurance on that bet. BMO’s Davis has been shorting two-year Treasuries since December, though covered half of that position amid the climb in rates since the start of the year.
At Societe Generale SA, Chief FX Strategist Kit Juckes told clients in a report last week that if “the US economy re-accelerates, the Fed will eventually have to tighten again and the dollar will rally,” possibly back to 2022’s all-time high.