The WSJ's Nick Timiraos is out with his latest and it's not any kind of a leak but it taps into what many market participants are worried about, especially ahead of tomorrow's CPI report.
He noted that many "are seriously considering whether the central bank’s target rate will rise as high as 6% before Fed officials take their foot off the brake."
Right now the market is pricing in a terminal top of 5.07% in May but Fed policymakers have been clear that they're willing to hike beyond that and will sacrifice growth to tame prices.
“Five percent has become the new 4%, and that could mean that 6% becomes the new 5%,” said Brett Wander, chief investment officer for fixed income at Schwab Asset Management.
Another scenario is that the Fed keeps rates high for a longer period of time -- perhaps a full year after hitting the terminal top. That could also damage bonds and if inflation still stays high through a recession, then the market could price in 5% rate for years. That kind of move would push up the long end further and cause a broad repricing in asset markets.
For now, we'll take it one CPI report at a time. Tomorrow the consensus is for 8.0% y/y inflation and a 0.6% rise in the month.
In terms of market implications, USD/JPY would certainly be a winner if rates rise further -- though you have to wonder how Japan can continue to avoid global inflation. Goldman Sachs was out with a note this week calling for 155.00.
