Vinod Bhat's Market Pulse - Mar 8, 2023
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We’ve come full circle in a short time as US Fed chairman Powell struck an uber-hawkish tone in his testimony to Congress.
Powell suggested that the Fed is likely to raise rates more than previously expected in response to recent strong data. The Fed is prepared to move in larger steps if tougher measures are needed to control price increases, especially since there is little sign of disinflation in the core services excluding housing PCE inflation.
Fed funds futures are now pricing in a 70% probability that the Fed will hike rates by 50 basis points at its March 21-22 meeting, up from 30% yesterday. The focus will now be on upcoming US payrolls data this week and inflation data next week.
The US 2-year Treasury yield rose above 5% for the first time since 2007 and the 10-yr is back above 4%.
Dollar Index is also inching up towards 106 levels putting pressure on Equity markets, especially in Emerging Markets.