The Hawks are Circling
This week, Fed Chairman Powell reiterated the Board’s commitment to flight inflation. In addition to the Chairman, a number of other Board members independently spoke to the same tune and their tune is all pointing to higher Fed Funds rates sooner and for longer.
The markets are now pricing a 75 bpt hike on 9/21 and close to a 75 bpt hike on 11/1. This will get the Fed Funds rate close to 4% by year end. Given the Fed’s most recent hawkish rhetoric, we remain cautious on duration and equity risk.
Currently, 1 month T Bills yield 2.50%, imagine a scenario not too long from now when they yield close to 4.00%. We suspect this will look very attractive to many risk averse investors and at the expense other investments.
