The US Federal Reserve announced its fourth consecutive 75 basis-point interest rate increase while hinting that its aggressive campaign to fight inflation may be nearing its conclusion. As a result of the unanimous decision, the benchmark federal funds rate is now expected to be between 3.75% and 4%, the highest level since 2008.
“Mr. Market was anticipating the U.S. Fed’s 0.75 percentage point rate increase, demonstrating a commitment to sticking with the program until the job is finished. It appears that the Fed funds rate will be at a 5–5.5% level in the first quarter of 2023, with a real GDP of 0%–1% but an approximate nominal GDP of 6%–7%.
This is not the same as a bear market. The markets will most likely begin to anticipate the rate hike freeze and eventual easing to return the Fed rate to the neutral range of 2.25%–2.5% by H1 2023. Thus, once core PCE inflation rates appear to be moving below the 5-year treasury yields in 2023, it may be quite bullish, according to Vikas Gupta, CEO and Investment Strategist, OmniScience Capital.