This question hinges on interest rates, and expectations have been shifting on those for over a year.
March 21, 2022:That would lift the short-term policy rate - pinned for two years near zero - to a range of 2.25% to 2.5% by the end of the year [2022], higher than the 1.9% that Fed policymakers just last week anticipated.
Source:
https://www.reuters.com/business/fed-must-move-expeditiously-if-needed-more-aggressively-powell-says-2022-03-21/June 22, 2022:Central bank officials project the federal funds rate could be between 3% and 3.5% by the end of the year.
Source:
https://www.cbsnews.com/news/jerome-powell-raising-interest-rates/September 21, 2022:the Federal Reserve has set its sights on a target fed funds rate of 4.4% by the end of 2022
Source:
https://www.cnbc.com/2022/09/21/real-time-updates-of-the-federal-reserves-big-rate-decision-and-powells-press-conference.htmlCurrently, the futures markets expect rate hikes to top out at
5% next spring, but that number has been slipping forward all year.
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.htmlSo to answer the question:
Is this the new "Top in in" thread?
The answer is yes, if we are talking about the Federal Funds Rate.
And that answer depends upon inflation.
In the other thread about interest rates and assumptions, I noted that if we adjust the velocity of the money supply (M2) to account for the new dollars created in the past two years, the product is an adjusted velocity of M2 whose increase over the past 2 years is only a few percent away from the increase in CPI over the same timeframe. Thus, a theorist might say we only have a few percent more gains in CPI (over the twenty-teens baseline) to go before we are done with inflation caused by the increase in the supply of money from pandemic legislation.
At that point - or perhaps partially now - inflation either shifts to being driven by expectations, not money supply, or inflation falls due to recession. My 2c is that we won't see "the top" in the FFR before next spring, unless China invades Taiwan or something. By next spring, expectations might continue to slip upward like they did throughout 2022 or a recession might be here. I've configured my portfolio based on there being a good chance expectations set in, cause consumers and businesses to continue pulling ahead purchases, and drive high inflation for another 10-12 months without a recession to rescue us from continuing rate hikes.
Also note that the Fed's policy guidance on their own website (updated in 2018) says that in theory they should get the FFR above the rate of inflation if they want to reduce the growth of inflation. A historical review shows that has always been the case. Consider how far below 8+% inflation the 3.25% FFR is right now! We could still be in stimulative territory.
https://www.federalreserve.gov/monetarypolicy/principles-for-the-conduct-of-monetary-policy.htmImagine the a future financial media article next March saying "The Fed now projects the federal funds rate could hit 7.25% by the end of the year.". That could happen, and it would make stocks and bonds a LOT cheaper! It already happened in similar circumstances during the 1973-74 rate hiking cycle. Stock and bond investors got crushed for two years.
