Third Triple Hike 3×3
As widely expected, the Fed delivered its third 0.75% hike on Wednesday (21 September). Even before this move, the pace of Fed rate hikes this time round is the most rapid since the 80s. The S&P 500 fell more than 4% as Chair Powell’s comments and the most recent dot plot turned more hawkish.
Image Credit: Schwab, as of Sep 13, 2022
Fed officials project that rate hikes will continue into 2023, and the target rate could be as high as 4.6% by end 2023.
And the inversion deepens
With short term rates now above 3%, the yield differential between 2 year and 10 year treasury (usually positive due to term premium) turned negative. The 10 year yield is now lower than the two year yield, it should usually be higher as there is extra uncertainty due to investing further in the future.
Yield curve inversion is generally taken to be a recession indicator and a sign...