The Federal Reserve is preparing a new bazooka for rising bond prices at 11-year highs | markets

With a recession at the gates, the US Federal Reserve meets today to confront, or attempt to do so, inflation that continues to fall and sovereign debt into free fall, while its profitability, moving inversely, continues to rise and re-checks its highs day in and day out. day.

Expert consensus calls for a 75 basis point increase in prices, to leave it in a range of 3% to 3.5%. If confirmed, it will be the third consecutive increase of the same amount, but the percentage of analytics companies rose to 20%, which does not rule out an escalation of the increase to 100 basis points. A possibility that increases after we learned that inflation in August was 8.3%, above economists’ estimates, and that the core rate, far from declining, rose from 5.9% to 6,3%. If such a violent rally occurred, it would be the first such move by the Federal Reserve since the 1980s.

ING economists note that “a 75 basis point hike remains our preferred option and the vast majority of economists seem to think the same.” They estimate that inflation is “more sticky than we initially thought and is still prevalent. However, there is not much the Federal Reserve can do about current inflation, so its response will depend on which direction inflation is heading. Labor market remains strong and data Short-term activity has held up,” they say.

The mere possibility of a 1% increase has sent the US sovereign debt yield soaring. The yield on the 10-year bond has risen to 3.57%, the highest in the past 11 years. A vertical rise that is felt in all respects but with greater ferocity in Luxor. In the case of bonds due in 2024, their yield is approaching 4%, levels not seen since 2007. So far this year, the two-year US debt is up 3% and is on track to post its biggest annual rise since 1994. At the start of the year barely I touched 0.7%.

Paolo Zangiri, chief economist at Generali Investments, believes that from now on, the Fed will slow the rate of gains: “We expect a slightly slower pace of tightening, with a 50 basis point increase in November and a recent 25 basis point increase. , with risks skewed to the upside. The Fed will then keep the official interest rate at 4% (higher end) until early 2024.”

However, Rafael Olzina-Marzis, international economist at J. Safra Sarasin Sustainable AM, sees a “high probability that it will have to act ‘significantly’ again at the next date in November.”

Regardless of where the Fed takes rates at this meeting, the big question mark will be in updating the central bank’s economic outlook, as it will provide estimates of inflation and unemployment and the market will be attentive to see how much pain it is willing to endure in terms of unemployment and output growth GDP,” says Michael Kramer, investment analyst. com. Along those lines, Christina Gavin, head of fixed income at Ibercaja Management, stresses that the new forecast will largely determine what the “reach level” of US interest rates may be, and that the manager believes it will reach 4.5% at the beginning of March.

The Fed also has yet to elaborate on how to implement the gradual reduction of the balance sheet, which currently stands at $95,000 million per month. At ING, they estimated that Powell would slowly address the problem that has developed in the background in recent months.