A Fed rate hike is still possible due to a strong economy.

Oct 27
A strong U.S. economy may require the Federal Reserve to hike interest rates further to combat persistent inflation, according to Richard Clarida of Pacific Investment Management Co.

"We don't see the labor market weakening, and progress in fighting inflation has stalled since the summer," former Fed vice chairman Tom Kean said on Thursday at Bloomberg's Future of Fixed Income conference in New York. "The well-anchored expected inflation is good news for the Fed."
Investors have reduced their expectations that the central bank will increase borrowing costs in the upcoming months as a result of a recent increase in Treasury yields.

According to Bloomberg statistics, swaps traders are pricing in a mere 8 basis point increase in policy tightening at the central bank's January meeting, which is in line with the policy's predicted peak and indicates a roughly 32% possibility of another 25 basis point boost.

According to Clarida, the sell-off in the Treasury market earlier this week, which caused the 10-year yield to rise above 5% for the first time since 2007, is a result of several factors, including the supply of bonds, the conclusion of quantitative easing, and Jay Powell's remarks, longer and higher."

"With a committee supporting him, the Fed chairman is raising rates by twofold in the long run. We will observe the effects of these rates on the economy more and more the longer bond yields remain at this level, he stated.

He was also eager to point out that consumers are locked into cheap 30-year fixed rates, businesses have paid off debt, and the economy as a whole is benefiting from the improved transmission of monetary policy.

The central bank's biggest task, according to global economic advisor Pimco, may be determining when to begin reducing interest rates.

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