Highest Interest Rates Since 2007

After a week of surprising economic data the markets have begun to price in higher rates. Since October’s surprisingly great CPI report, released in November, the market had been pricing in a scenario where the Fed could stop hiking sooner rather than later.

For reasons that are great for the average American that reality is changing. Retail sales rose 3% in one month, 517,000 jobs were added, and month over month deflation did not set in (and because inflation is rising the market has to think again about the future of the Fed).

Over that time, from October to the beginning of last week, short term interest rates held around 4.5%, a sign that the Fed was near it’s peak and could soon come down.

There was no certainty of that and there is no certainty that rates will need to rise further. What is certain is that the Federal Funds rate is at 4.75% and is projected, *by the Fed*, to rise to 5.25% and hold there for some time.

The market had discounted the Fed by saying economic data was worsening and they would soon need to pivot. Market rates showed that the Fed would need to drop rates into the end of the year and next year drastically.

Now, what has changed is the market’s expectation of future rate adjustments, up or down, because of resilient economic data.