Classifieds

Commentary
Since the previous Federal Open Market Committee (FOMC) meeting, where the Federal Reserve (Fed) reiterated a longer-than-expected rate hike and a later-than-expected rate cut, the shorter market rates then edged up. Yet, Fed funds futures show the terminal rate stayed at around five percent and moved within a small range of plus or minus 25 basis points. The market is likely to remain in a narrow range, and the terminal hike will likely end in March, May, or June 2023.
One of the possible reasons why the Fed gave such a hawkish signal is probably the persistently high inflation and a strong economy. This year, the core inflation rate has stayed at or above the 6 percent level, while the official unemployment rate remains at 3.6 percent. These are no doubt strong signals of overheating. Based on models of the past, the so-called equilibrium or neutral interest rate was probably three percent or below, but the current trend is upward of three percent or even four percent plus. The Fed funds target rate has just reached above this level....