Federal Funds Rate

Wall Street is currently braced for a recession and so this was taken as an invitation to bet on a major reversal. Bond yields plummeted. My favorite example of how assumptions changed is the chart below, which compares current expectations for next year's fed funds rate to the same expectations exactly eight weeks ago when Powell testified before Congress and the news about Silicon Valley Bank was just hours away from being released. Eventually, the market gave up on the idea of the Fed pivoting and expected a rise to over 5.6%, with rates still above 5.4% in January next year. The key interest rate is now 25 basis points lower than forecast two months ago. It is now expected to be below 4% in January: