The Fed funds futures market now sees the top in rates at 3.92% at the May 2023 meeting. Interestingly, the timeline for the top is creeping forward, as it had previously been in June 2023.
The thinking there is that by hiking more-aggressively the Fed will get to the top faster, and also leading to the possibility of cuts afterwards as the lagged effects hurt the economy.
JPMorgan short-term rates guru Marko Kolanovic thinks it's all too much.
“We believe rates market repricing went too far and the Fed will surprise dovishly relative to what is now priced… The move in markets prices in more than enough recession risk, and we believe a near-term recession will ultimately be avoided," he said.
What's particularly concerning is what's happening outside of Treasuries. There is talk of major stress in MBS and the high-yield market is seizing up.
