Hawkish Federal Reserve Board predicts to shock Treasury market

US stocks have fallen, Treasury yields Federal Reserve He said he expects to raise interest rates in 2023, a year earlier than previously thought.

Benchmark S & P 500 fell 0.6% due to a declining share of tech companies such as Oracle, Microsoft and Facebook. The Nasdaq Composite Index also fell 0.6%.

The stock market decline was accompanied by the sale of the $ 21 trillion financial market, and benchmark 10-year bond yields rose 0.06 percent to 1.56 percent.

Among the most sensitive and shorter dated government bonds interest rate There was an even bigger move in the policy. Yields on 5-year bonds rose 0.09 points to 0.88%, while yields on 2-year bonds temporarily reached their highest level of 0.19%.

“As the market is happy that the patient’s Fed and inflation are well above target, Dot plot Cima Shah, chief strategist at Principal Global Investors, said with reference to a graph showing Fed officials’ interest rate forecasts.

“Now [Fed chair Jay] Powell and other Fed speakers have once again reassured the market that the tightening of 2023 does not have to be confusing. “

The stock market recovery over the past year is partly based on solid interest rates, which the Fed has fixed at near zero since the crisis began in March last year.

Central Bank policymakers have shown that they can raise interest rates faster than previously thought, but to the Fed’s $ 120 billion monthly asset purchase program, which investors are beginning to expect to shrink soon. I haven’t shown the changes yet.

But the market is worried about the signs Higher inflationIt could force the central bank’s hand, as Federal Reserve Board policymakers admitted in an economic forecast released Wednesday.

“Given that the only point from the Fed’s renewal is related to higher interest rates, the Treasury is intuitively trading lower,” said Ian Ringen, US interest rate strategist at BMO Capital Markets. I understand. ”

Ian Shepherdson, chief economist at Pantheon Macroenomics, said the 2023 rate hike forecast was that members of the Fed’s policy-making committee said, “Now we are ready to talk about tapering, so Chair Powell will repeat March. Will not be possible. ” / April obstruction. .. .. We expect him to only admit that the debate is underway, but a firm decision is a long way off. “

The US dollar index rose 0.4% as Treasury yields rose. The pound fell 0.4% against the dollar, while the euro fell 0.7% to $ 1.20.

European equities ended with a new record before the Federal Reserve Board’s decision was announced. Stocks Europe rose 0.2% to hit a record high, the ninth consecutive rise in the regional benchmark.

Frankfurt’s Xetra Dax rose 0.1%, while Paris’ CAC 40 and London’s FTSE 100 both rose 0.2%.

Additional report by Siddharth Venkataramakrishnan in London

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Hawkish Federal Reserve Board predicts to shock Treasury market

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