Posted on September 27, 2022 After last week’s FED meeting, the most relevant thing was the 75 bps increase by the entity, although what was not expected was the extremely hawkish speech by Jerome Powell , which has surprised everyone. The terminal rate forecast for 2023 rises to 4.6%, compared to the market estimate of 4.45% and a limited rate cut in 2024 (down to 3.9%). Even so, the FED still does not see a clear scenario of recession, it foresees a significant drop in economic growth, but not a recession. The market reaction was very significant, especially with a strong widening of the short part of the American curve, the 2-year UST widened 27 bps last week to close at 4.20%. The inversion of the 2/10-year curve is accentuated again to -53 bps. The BoE will probably make a strong rate hike, traders are pegging it at 150 bps for the month of November, because the £161bn of fiscal measures announced on Friday by the new government, with the aim of stimulating growth, have meant a strong impact for the public debt market and for the currency. The plan, much more ambitious than expected, is considered excessive and counterproductive insofar as it could generate more inflation and increase indebtedness. The widening of the Guilts curve on Friday, after the publication of the plan, was very significant (50 bps on the day the short part of the curve) and the British pound fell to levels not seen since 1985. The credit market has been highly conditioned by the positioning of the Central Banks and by the extreme movements of the sovereign curves. The maximum spreads for the month of June have already been reached (Itraxx Main 134 bps and 658 bps for the Crossover) given the prospects of a faster-than-expected slowdown as a result of the more restrictive monetary policy. INFORMATIONTitlePowell’s hawkins speech is surprising, despite the rate hikeDescriptionAfter the FED meeting last week, the most relevant thing was the 75 bps increase by the entity, although what was not expected was the speech extremely hawkish on the part of Jerome Powell, which has surprised everyone. Author GLOBALCAJA
Powell’s hawkish speech surprises, despite rate hike
