“The Fed will get the funds rate to 4% in March and that will create enough drag to gross domestic product to put the economy into a recession” by the second half of 2023, said Aneta Markowska, chief US economist at Jefferies LLC. “Inflation will still be close to 4% at that point but they will stop.”
The uncertainty about the Fed’s path has fueled historic price swings in the Treasury market this year as investors raced to price in the latest economic developments. That’s been worsened by forces beyond the Fed’s control, such as supply-chain bottlenecks, China’s zero-Covid policy and rising energy costs connected to the Russian war in Ukraine.
The survey does little to indicate that such volatility will fade: Nearly 20% of respondents saw 10-year yields peaking in the next nine months at the extreme ends -- at as low as 2.9% or at more than 4.1%.
“The real question is how much does reality actually deviate going forward from the beliefs that markets have now,” said Mark Freeman, chief investment officer at Socorro Asset Management LP. “There’s a growing belief maybe inflation peaked, but the problem is inflation doesn’t move in straight line. And underlying inflationary trends will persist until the Fed actually engineers a less-tight labor market.”
BMO Capital Markets’ Margaret Kerins and Bloomberg’s Ed Harrison will take your questions in our live blog, MLIV Pulse Q&A: How Far Will Fed Go? Tune in on July 26 at 10 a.m. New York time, and send advance questions to [email protected].
--With assistance from Sebastian Boyd and Tomoko Yamazaki.
This article was provided by Bloomberg News.